The future for franchises
These are changing times for franchisees and franchisors in terms of regulations. This expert advice will help you understand the potential changes.
A number of changes are being made to the Franchising Code of Conduct and the Trade Practices Act and these were announced at the end of last year. Here I’ve highlighted the main areas to be aware of and my thoughts on them as boss of the Chooks franchise.
1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations.
I believe that this is an area where we all need to be accountable; however whether fines will actually assist in this area is debatable.
2. Random audits of franchise systems to be conducted by the Australian Competition and Consumer Commission (ACCC).
Random audits should be welcomed by all systems, as the Code has done a very good job to date. Those in franchising who have understood and embraced the provisions would not (or should not) be worried about any audit, in the same fashion as any franchisee should not be worried about an audit by the franchisor given that they are complying with the provisions of their agreements and the system.
3. Public warnings about rogue franchisors.
Public warnings about rogue franchisors/systems should also be welcomed, however franchising in general should not be labeled or be seen in a bad light because of negative PR.
4. In acknowledgement (but not specific legislation) of good faith in relation to franchise agreements.
Good faith is something that can never be legislated for and this provision is something that has been driven by a private agenda. There is no way that this type of provision would ever gain any momentum in applying the same rules to leasing. The fact is that a franchise is essentially a right and a privilege to the relationship, essentially when one rents the name, the system and the intellectual property of a system for a specific period of time for a fee and for an ongoing royalty.
5. A requirement to clarify end of term arrangements, including a six-month mandatory period of notice of renewal.
This is something that is implied in every franchise agreement, however sometimes lawyers and some franchisors do not bother to explain how it works from the outset. In my work with CHOOKS fresh & tasty, in my introductory briefing to franchisees, I explain image upgrades, what happens if one wants to sell, when businesses actually do sell, how the franchise fee is or should be calculated and when to negotiate the end of term, in order to protect the goodwill of both parties, and how to value their business at any point along the way. We advise our franchisees that the time to renegotiate the term is 12 months prior to the end.