The Code requires you to maintain a disclosure document. You are required to provide a disclosure document to a person proposing to enter into, renew or extend a franchise agreement.
The purpose of a disclosure document is to give a prospective franchisee key information about the franchise system, and an existing franchisee current information about the running of the franchise.
Information you are required to disclose includes:
- details of certain types of legal proceedings against the franchisor or its directors
- contact details of current as well as former franchisees (unless the former franchisee has requested in writing that their details not be disclosed)
- the franchisee’s costs to start operating the franchised business and other payments or fees they may be required to make
- details of the arrangements that will apply when the franchise agreement comes to an end (including whether the franchisee will have an option to renew or extend the agreement or enter into a new agreement).
Content of the disclosure document
The disclosure document must adopt the format, order, headings and numbering used in Annexure 1 of the Code. It must also be signed by the franchisor, or a director, officer or authorised agent of the franchisor.
If no applicable information exists for a particular item of the disclosure document, you may delete the applicable headings from the disclosure document. However, you must list the deleted headings in an attachment so that the prospective or existing franchisee is aware of what information has not been provided.
The disclosure document must also contain a table of contents. If the disclosure document attaches other documents, these documents must be listed in the table of contents.
The ACCC has developed a model disclosure document, with tips on how to fill in the details, to assist you to fulfil your disclosure obligations under the Code. This model disclosure document is available for download at: Franchisor compliance manual.
Financial details are a key piece of information for prospective and existing franchisees as they provide an insight into the immediate status of the franchise system. The Code requires that certain financial details be included under item 21 of the disclosure document.
If updated financial details (including any statement, declaration or document referred to in item 21 of Annexure 1 of the Code) become available after a prospective franchisee has received a disclosure document, but before they enter into a franchise agreement, those details must be provided to the prospective franchisee as soon as reasonably practicable. You must not enter into the franchise agreement until after you provide the prospective franchisee with the updated financial details.
Example: A franchisor provides a prospective franchisee with a disclosure document in May. At the time it is provided, the document is up-to-date. The prospective franchisee does not enter into the franchise agreement until August. The franchisor operates on the Australian financial year (1 July—30 June) and prepares a new financial report in July.
The franchisor would be required to provide the prospective franchisee with the new financial report before it enters into the franchise agreement, irrespective of whether the report shows an improvement or deterioration of the franchisor’s financial position.