A new Franchising Code of Conduct (Code) is coming into effect from 1 April 2025.
We have previously written about the new Code (here and here). Whilst the new Code now provides for some transitional arrangements (which the Federal Government is calling ‘grace periods’), the application of the transition provisions is limited and problematic, and franchisors do need to be taking action now to update their franchise documentation.
If a franchisor plans to grant or renew a franchise agreement in early April or is aware that a franchise sale may occur in early April (which usually involves the grant of a new agreement to the purchaser franchisee), time is fast running out to ensure that any new franchise agreement is compliant with the new Code. At a minimum, all franchisors will need to review and likely make reasonably significant changes to their template franchise agreement. Although some provisions of the new Code will not take effect until 1 November 2025 (for example the controversial new provision providing for compensation to a franchisee in specified circumstances), we recommend franchisors seek legal advice now and look to draft a compliant compensation provision, albeit a franchisor may elect not to include the compensation provision until 1 November 2025. If a franchisor has current transactions pending and disclosure has been provided, steps should be taken to ensure that franchise agreements are signed and completed before 1 April 2025.
In terms of updating disclosure documents, whilst there is a debate in the franchise sector at present, most franchisors (with a 30 June financial year) may elect to again update their disclosure document to be compliant with the new Code. This will involve careful consideration of what is required, and franchisors need to seek specialist franchise legal advice as to what is mandatory or what can be delayed, and the potential risks if a full update is not undertaken.
Please reach out to our specialist franchise team if you are needing assistance.
This article was written by Sean O’Donnell, Partner.
