Section 17D - Trade Practices (Industry Codes—Franchising) Regulations 1998 - Amendment of franchise agreement on transfer or novation of franchise

17D Amendment of franchise agreement on transfer or novation of franchise

17D.1 Whether the franchisor will amend (or require the amendment of) the franchise agreement on or before the transfer or novation of the franchise.

18 Obligation to sign related agreements

18.1 Summary of any requirements under the franchise agreement for the franchisee or directors, shareholders, beneficiaries, owners or partners of the franchisee to enter into any of the following agreements:

(a) a lease, sublease, licence or other agreement under which the franchisee can occupy the premises of the franchised business;

(b) a chattel lease or hire purchase agreement;

(ba) an agreement under which the franchisee gains ownership of, or is authorised to use, any intellectual property;

(c) a security agreement, including a guarantee, mortgage, security deposit, indemnity, loan agreement or obligation to provide a bank guarantee to a third party;

(d) a confidentiality agreement;

(e) an agreement not to carry on business within an area or for a time after the franchise agreement is terminated.

18.2 All documents mentioned in item 18.1 must be provided to the franchisee:

(a) at least 14 days before the day on which the franchise agreement is signed, if they are available at that time; or

(b) if they are not available at that time — when they become available.

19 Earnings information

19.1 Earnings information for the franchise, if it is given, must be based on reasonable grounds.

19.2 Earnings information may be given in a separate document attached to the disclosure document.

19.3 Earnings information includes information from which historical or future financial details of a franchise can be assessed.

19.4 If earnings information is not given — the following statement:

The franchisor does not give earnings information about a [insert type of franchise] franchise.

Earnings may vary between franchises.

The franchisor cannot estimate earnings for a particular franchise.

19.5 Earnings information that is a projection or forecast must include the following details:

(a) the facts and assumptions on which the projection or forecast is based;

(b) the extent of enquiries and research undertaken by the franchisor and any other compiler of the projection or forecast;

(d) an explanation of the choice of the period covered by the projection or forecast;

(e) whether the projection or forecast includes depreciation, salary for the franchisee and the cost of servicing loans;

(f) assumptions about interest and tax.

20 Financial details

20.1 A statement as at the end of the last financial year, signed by at least 1 director of the franchisor, whether in its directors’ opinion there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due.

20.2 Financial reports for each of the last 2 completed financial years in accordance with sections 295 to 297 of the Corporations Act 2001, or a foreign equivalent of that Act applicable to the franchisor, prepared by the franchisor.

20.2A If:

(a) the franchisor is part of a consolidated entity that is required to provide audited financial reports under the Corporations Act 2001, or a foreign equivalent of that Act applicable to the consolidated entity; and

(b) a franchisee requests those financial reports;

financial reports for each of the last 2 completed financial years, prepared by the consolidated entity.

20.3 Items 20.2 and 20.2A do not apply if:

(a) the statement under item 20.1 is supported by an independent audit provided by:

(i) a registered company auditor; or

(ii) if the franchisor is a foreign franchisor — a foreign equivalent for that franchisor;

within 12 months after the end of the financial year to which the statement relates; and

(b) a copy of the independent audit is provided with the statement under item 20.1.

21 Updates

21.1 Any information given under clause 18 of the code that has changed between the date of the disclosure document and the date the disclosure document is given under the code.

22 Other relevant disclosure information

22.1 A copy of the franchise agreement, in the form in which it is to be executed, must be attached.

22.2 Copy of the code must be attached.

22.3 Any other information that:

(a) the franchisor wants to give; and

(b) does not contradict information required to be given.

23 Receipt

23.1 On the last page of the disclosure document:

(a) a statement to the effect that the prospective franchisee may keep the disclosure document; and

(b) a form on which the prospective franchisee can acknowledge receipt of the disclosure document.

Annexure 2 Short form disclosure document for franchisee or prospective franchisee

(subclause 6 (2))

1.1 On the first page:

(a) in bold upper case:

SHORT FORM DISCLOSURE DOCUMENT FOR FRANCHISEE OR PROSPECTIVE FRANCHISEE; and

(b) the franchisor’s:

(i) name; and

(ii) business address and phone number; and

(iii) ABN, ACN or ARBN (or foreign equivalent if the franchisor is a foreign franchisor); and

(d) the preparation date of the disclosure document; and

(e) the following statement:

This disclosure document contains some of the information you need in order to make an informed decision about whether to enter into a franchise agreement.

Entering into a franchise agreement is a serious undertaking. Franchising is a business and, like any business, the franchise (or franchisor) could fail during the franchise term. This could have consequences for the franchisee.

A franchise agreement is legally binding on you if you sign it.

You are entitled to a waiting period of 14 days before you enter into this agreement.

If this is a new franchise agreement (not a renewal, extension, extension of the scope or transfer of an agreement), you will be entitled to a 7 day ‘cooling off’ period after signing the agreement, during which you may terminate the agreement.

If you decide to terminate the agreement during the cooling off period, the franchisor must, within 14 days, return all payments (whether of money or of other valuable consideration) made by you to the franchisor under the agreement. However, the franchisor may deduct from this amount the franchisor’s reasonable expenses, if the expenses or their method of calculation have been set out in the agreement.

Take your time, read all the documents carefully, talk to other franchisees and assess your own financial resources and capabilities to deal with the requirements of the franchised business.

You should make your own enquiries about the franchise and about the business of the franchise.

You should get independent legal, accounting and business advice before signing the franchise agreement.

It is often prudent to prepare a business plan and projections for profit and cash flow.

You should also consider educational courses, particularly if you have not operated a business before.

2.1 The franchisor’s:

(a) name; and

(b) address, or addresses, of registered office and principal place of business in Australia; and

2.2 The name under which the franchisor carries on business in Australia relevant to the franchise.

2.3 A description of the kind of business operated under the franchise.

2.4 The name, ABN, ACN or ARBN, address of registered office and principal place of business of each associate of the franchisor that is a body corporate (if any).

2.5 The name and address of each associate of the franchisor that is not a body corporate (if any).

2.6 For each officer of the franchisor — name, position held and qualifications (if any).

3 Litigation

3.1 Details of:

(a) current proceedings by a public agency, criminal or civil proceedings or arbitration, relevant to the franchise, against the franchisor or a franchisor director in Australia alleging:

(vi) an offence of dishonesty; and

(b) proceedings against the franchisor under:

(i) section 127A or 127B of the Workplace Relations Act 1996; or

(iii) section 276 of the Industrial Relations Act 1999 of Queensland.

3.2 Whether the franchisor or a director of the franchisor has been:

(a) in the last 10 years — convicted of a serious offence, or an equivalent offence outside Australia; or

(b) in the last 5 years — subject to final judgment in civil proceedings for a matter mentioned in paragraph 3.1 (a); or

(c) in the last 10 years — bankrupt, insolvent under administration or an externally‑administered body corporate in Australia or elsewhere.

3.3 For items 3.1 and 3.2 — the following details (where relevant):

(a) the names of the parties to the proceedings;

(b) the name of the court, tribunal or arbitrator;

(d) the general nature of the proceedings;

(e) the current status of the proceedings;

(f) the date of order or undertaking under section 87B of the Act;

(g) the penalty or damages assessed or imposed;

(h) the names of the persons who are bankrupt, insolvent under administration or externally administered;

(i) the period of the bankruptcy, insolvency under administration or external administration.

4 Intellectual property

4.1 For any trade mark used to identify, and for any patent, design or copyright that is material to, the franchise system (intellectual property):

(a) description of the intellectual property; and

(b) details of the franchisee’s rights and obligations in connection with the use of the intellectual property; and

(c) whether the intellectual property is registered in Australia, and if so, the registration date, registration number and place of registration; and

(d) any judgment or pending proceedings that could significantly affect ownership or use of the intellectual property, including:

(i) name of court or tribunal; and

(ii) matter number; and

(iii) summary of the claim or judgment; and

(e) if the intellectual property is not owned by the franchisor — who owns it; and

(f) details of any agreement that significantly affects the franchisor’s rights to use, or to give others the right to use, the intellectual property, including:

(i) parties to the agreement; and

(ii) nature and extent of any limitation; and

(iii) duration of the agreement; and

(iv) conditions under which the agreement may be terminated.

4.2 The franchisor is taken to comply with item 4.1 for any information that is confidential if the franchisor gives:

(a) a general description of the subject matter; and

(b) a summary of conditions for use by the franchisee.

5 Franchise site or territory

5.1 Whether the franchise is:

(a) for an exclusive or non‑exclusive territory; or

(b) limited to a particular site.

5.2 For the territory of the franchise:

(a) whether other franchisees may operate a business that is substantially the same as the franchised business; and

(b) whether the franchisor or an associate of the franchisor may operate a business that is substantially the same as the franchised business; and

(c) whether the franchisor or an associate of the franchisor may establish other franchises that are substantially the same as the franchise; and

(d) whether the franchisee may operate a business that is substantially the same as the franchised business outside the territory of the franchise; and

(e) whether the franchisor may change the territory of the franchise.

6 Marketing or other cooperative funds

6.1 For each marketing or other cooperative fund, controlled or administered by or for the franchisor, to which the franchisee may be required to contribute, the following details:

(a) the kinds of persons who contribute to the fund (for example, franchisee, franchisor, outside supplier);

(b) whether the franchisor must contribute to the fund in relation to businesses owned or operated by the franchisor that are substantially the same as the franchised business and, if so, whether the contribution is worked out in the same way as for a franchisee;

(c) how much the franchisee must contribute to the fund and whether other franchisees must contribute at a different rate;

(d) who controls or administers the fund;

(e) whether the fund is audited and, if so, by whom and when;

(f) whether the fund’s financial statements can be inspected by, or will be given to, franchisees;

(g) the kinds of expense for which the fund may be used;

(h) the fund’s expenses for the last financial year, including the percentage spent on production, advertising, administration and other stated expenses;

(i) whether the franchisor or its associates supply goods or services for which the fund pays and, if so, details of the goods or services;

(j) whether the franchisor must spend part of the fund on marketing, advertising or promoting the franchisee’s business.

7 Payments

Prepayments

7.1 If the franchisor requires a payment before the franchise agreement is entered into — why the money is required, how the money is to be applied and who will hold the money.

7.2 The conditions under which a payment will be refunded.

Establishment costs

7.3 Details of the range of costs to start operating the franchised business, based on current practice, for the following matters:

(a) real property, including property type, location and building size;

(b) equipment, fixtures, other fixed assets, construction, remodelling, leasehold improvements and decorating costs;

(d) security deposits, utility deposits, business licences, insurance and other prepaid expenses;

(e) additional funds, including working capital, required by the franchisee before operations begin;

(f) other payments by a franchisee to begin operations.

7.4 For item 7.3, the details for each payment must include:

(b) amount of the payment or the formula used to work out the payment; and

7.5 For item 7.4, if the amount of the payment cannot easily be worked out — the upper and lower limits of the amount.

Other payments

7.6 For each recurring or isolated payment payable by the franchisee to the franchisor or an associate of the franchisor or to be collected by the franchisor or an associate of the franchisor for another person:

7.6A For each recurring or isolated payment, that is within the knowledge or control of the franchisor or is reasonably foreseeable by the franchisor, that is payable by the franchisee to a person other than the franchisor or an associate of the franchisor:

7.7 For item 7.6 or 7.6A, if the amount of the payment cannot easily be worked out — the upper and lower limits of the amount.

7.8 If 2 or more of items 7.1, 7.3 and 7.6 apply to a payment, the information required by those items in relation to that payment need be set out only once.

17DAmendment of franchise agreement on transfer or novation of franchise

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