The franchisor compliance manual

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.