These are additional to the previously existing requirements on Franchisors to update their Disclosure Documents within 4 months of the end of the financial year and should be incorporated into the annual general review and update of the Disclosure Document.However as these additional obligations take effect from 1 July 2011, it is not sufficient for Franchisors to wait until the annual update of the Disclosure Document, namely 4 months from the end of the Franchisor’s financial year before providing this additional information. Unlike previous years Franchisors cannot simply provide their existing Disclosure Document for new franchises until their Disclosure Document is updated (in October for most systems).
Until the Disclosure Document is updated Franchisors will need to at least provide an addendum to their current Disclosure Document for franchises entered into from 1 July 2011 which contains this information until they have completed their annual update and incorporated the new disclosure obligations into their Disclosure Document.
Set out below is a summary of the further disclosures required.
Unilateral variations of the Franchise Agreement
Section 17A of the Disclosure Document requires Franchisors from 1 July 2011 to disclose to new Franchisees the circumstances in which the Franchisor has unilaterally varied a Franchise Agreement since 1 July 2010.
If the Franchise Agreement expressly incorporates the Operations Manual as part of the Franchise Agreement, any changes made to the Manual since 1 July 2010 will need to be disclosed under this section.
If the Franchise Agreement merely requires compliance with the Operations Manual, further disclosure may not be required however it may still be prudent to set out under this section any major changes made to the Operations Manual.
Arrangements to apply at end of the Franchise Agreement
Section 17C of the Disclosure Document requires Franchisors from 1 July 2011 to disclose to new Franchisees, details of whether the Franchisor has, since 1 July 2010, considered any significant capital expenditure undertaken by Franchisees, in determining the arrangements to apply at the end of Franchise Agreements between the Franchisor and those Franchisees.
This section was added to address concerns that a Franchisee may make a significant capital expenditure near the end of term and then not be able to recoup the value of that expenditure if the Franchisor does not renew the Franchise Agreement. Our suggestion is that in the absence of any specific situations in the last year where this issue had arisen that a generally worded response should be provided under this section to address this concern and provide appropriate disclosure.
We recommend you provide us with instructions to update your Disclosure Document and conduct a general review to ensure compliance with the Code requirements. If you urgently need to issue a Disclosure Document, we can also draft an addendum to the Disclosure Document which sets out the required additional information.
For further information, please contact:
Partner | Melbourne
P +61 3 8644 3542
Partner | Sydney
P +61 2 9334 8649
Peter van Rompaey
Partner | Melbourne
P +61 3 8644 3506