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The Trade Practices (Industry Codes - Franchising) Regulations 1998 provides at section 6 that – “A franchisor must, before entering into a franchise agreement, and within 4 months after the end of each financial year after entering into a franchise agreement create a document (a disclosure document) for the franchise in accordance with (the code)” The effect of section 6 is that all franchisors must update their disclosure document no later than 31 October each year. We strongly recommend that franchisors obtain advice from usbefore issuing an updated disclosure document. It is however possible for franchisors to consider for themselves what amendments might be necessary. By going through this process before seeing a lawyer it should be possible to save legal costs. Step 1 – Have there been any changes to the Franchising Code of Conduct? It is important to again realise that the content of the disclosure document is driven by the requirements of Annexure 1 of the Franchising Code of Conduct. Before you make any changes to the disclosure it is essential to check the current version of the code to ensure that changes have not been made to the requirements of the code. Most franchisors will know that in 2010 changes were made to the Franchising Code and the Annexure. These changes had the effect of requiring franchisors to amend their disclosure documents in July and October. If in any year the code requires additional information, then a careful note should be made of the required amendments.

Firstly, let’s consider where this step fits in the overall process of establishing a franchise system. If you are preparing a disclosure document for the first time, then you are not yet in the business of franchising. You can’t sign up your first franchisee to your system until you have prepared a franchise disclosure document. In the scheme of things, the disclosure document is the third document that you will prepare. The operations manual is the first document to prepare. The next is the Franchise Agreement, then the disclosure. How do you prepare your Franchise Agreement? Well, that is a job for a lawyer. You will need to use a lawyer who does this kind of work all the time. We can help you with this job. The industry is constantly changing, as is the code which governs the industry. You can buy template franchise agreements online. A search in Google will produce a number of results. Most of these websites will not produce documents that are current or relevant to Australia. Of course everyone starts the task of drafting any document with a template. The most difficult and time consuming part is making sure that the template is modified to cover the correct issues in the way needed in your particular industry and, in your particular franchise model.

The sale of a franchised business raises some issues which are additional to the usual business sale. 1. The franchise agreement may set out certain matters that need to be dealt with in the contract of sale. It would be a breach of the franchise agreement not to include required clauses. Don’t sign the business sale contract without first ensuring that you have included clauses dealing with all the matters as required by your Franchise Agreement. 2. The franchise agreement will normally specify what process needs to be undertaken to effect the sale. Make sure you comply with the process or seek legal advice. 3. The franchisor will invariably require you to obtain their consent before effecting the sale. This consent must be requested in writing and generally must be accompanied by certain information such as details of the proposed purchaser of the business and the proposed purchase price. 4. The Franchising code requires a franchisor to consent to the transfer of the franchise agreement unless the refusal of such consent is reasonable. Whether the refusal is reasonable is considered objectively. The code sets out a list of circumstances where it may be possible for a franchisor to refuse consent. JJ Riba & Company can provide you with a list of these matters and advise you in relation to how they may affect you.

Seek legal advice before you go too far! Riba Business Lawyers can undertake a thorough review of the Franchise Agreement you are considering. They have read hundreds of different Franchise Agreements and can tell you what is normal and reasonable. Small firm legal fees and big firm knowledge.

START BY UNDERTAKING SOME RESEARCH Ask yourself:  What are my strengths and weaknesses and how do these suit the requirements of the business?  What are the demographics of the area in which the business would operate?

1. A Franchise Agreement is defined in the Franchising Code of Conduct. The definition is very broad. Be cautious of anyone who tells you that they issue Licence Agreements and not Franchise Agreements. Some Franchisors believe that by calling an Agreement a Licence rather than a Franchise they can avoid compliance with the Franchising Code of Conduct. This is incorrect. See section 4 of the Franchise Code of Conduct. 2. At least 14 days before you enter into a franchise agreement the franchisor must

All Franchisors prepare Disclosure Documents because the Federal Government requires every Franchisor to prepare this document. Franchisees can insist that the Franchisor provide a Disclosure Document each year.

The first thing to realise is that the Franchisor cannot choose what information they will include in their Disclosure Document. Each Franchisor has to answer some very specific and probing questions about their business. Disclosure Documents can be difficult to read because of the volume of information contained in the Document. But if you know how to read it, then you can tell a lot about what the Franchisor is like. Would you like to know for instance, if the Franchisor has been involved in any legal proceedings with any Franchisees in the last 10 years? If so, do you want the court number so that you can see what the court decided? This is the kind of information that must be provided by a Franchisor. Is the Franchisor in the habit of terminating or not renewing franchise agreements? The Franchisor must say how many times this has happened.