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Disclosure Requirements, Good Faith Obligations And More – What Do The New Amendments To The Franchising Code Of Conduct Mean?

The humble franchise can be sized from small, family-owned businesses to major corporations, and can be found throughout shopping centres and streets.

With over 90,000 franchises classified as small or family businesses, it’s important to be aware of the protections that govern their interactions within the sector.

The Australian Competition and Consumer Commission (ACCC) is the government agency that administers and enforces the TTPA and franchising, and also investigates and prosecutes non-compliance with the Franchising Code of Conduct. The Franchising Code of Conduct must be complied with as a mandatory industry code, as it regulates the conduct of franchising participants towards one another.

The Franchising Code includes:

  • disclosure requirements
  • a good faith obligation
  • a dispute resolution mechanism
  • a cooling-off period
  • procedures for ending a franchise agreement.

From 1 July 2021, new amendments were introduced to the code to enhance the welfare of Australians by promoting competition and fair trading in the franchising sector and providing for the protection of parties who wish to enter into franchise agreements.

The primary purpose of the Competition and Consumer (Industry Codes – Franchising) Regulations 2021 (the latest amendments to the Code) is to improve the fairness and transparency of the franchising sector overall. The new amendments address both the franchising sector in general and the changes that new vehicle dealership agreements need to comply with.

What Do These Amendments Mean? 

Essentially, the new amendments have been implemented to:

  • Improve access to information for franchisees and prospective franchisees
  • Better balance the rights of franchisors and franchisees
  • Improve access to justice through additional, more efficient dispute resolution processes

Franchisees will now benefit from improvements to pre-entry disclosure requirements, including the introduction of a new key facts sheet (to be completed by the franchisor and provided to prospective franchisees).

They must also be provided with additional disclosure documents to help franchisees make an initial assessment about a franchise offer and an updated information statement that helps to consider the risks and opportunities associated with franchising. Other improvements to the existing code include:

  • extra dispute resolution options
  • a longer cooling-off period of 14 days, and new cooling-off rights for transfers
  • a prohibition on franchisors passing on certain legal costs
  • a prohibition on franchisors retrospectively and unilaterally varying franchisee agreements.

For new vehicle dealership agreements, the Code amendments make specific changes. These changes include:

  • Expanding the definition of motor vehicle dealership to recognise agency models, and
  • Provisions for fair and reasonable compensation for franchisees in the event of early termination.

Improved dispute resolution options will be available to any dispute that is notified on or after 2 June 2021. The majority of the other reforms will come into effect on 1 July 2021 and apply to agreements entered into, renewed, or extended on or after this date. Amendments that require a franchisor to change the disclosure document have a longer transition period and will apply from 1 November 2021.

If you are a franchiser of a business or are a franchisee looking to start your new journey, you will need to ensure that you are acting in compliance with the current and future amendments. You can speak with a legal professional to discuss your legal obligations and requirements.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier