The franchisor compliance manual

Marketing fees & capital expenditure

Dealing with marketing and advertising fees

If you operate a marketing fund, the Code imposes certain restrictions on how you deal with the marketing and advertising fees contributed to that fund.

Firstly, you must maintain a separate bank account for marketing and advertising fees. You must also contribute to the fund on the same basis as other franchisees for each company-owned store that you operate.

Marketing and advertising fees may only be used to meet expenses that:

  • have been disclosed in the disclosure document
  • are legitimate marketing or advertising expenses
  • have been agreed to by a majority of franchisees or
  • reflect the reasonable costs of administering and auditing the fund.

Significant capital expenditure

During the term of a franchise agreement you must not require a franchisee to undertake significant capital expenditure. The Code does not define what ‘significant capital expenditure’ means.

However, a franchisor can require franchisees to incur expenses where the expenditure:

  • was disclosed to the franchisee in the disclosure document that they received before entering into, renewing, or extending their franchise agreement
  • will be incurred by a majority of franchisees and a majority of those franchisees approve the expense
  • is necessary to comply with legislative obligations
  • has been agreed to by the franchisee
  • is considered necessary by the franchisor as a capital investment in the franchised business, justified by a statement which sets out the:
    • rationale for making the investment
    • amount of capital expenditure required
    • anticipated outcomes and benefits
    • expected risks associated with the investment.