In Australia, franchisors must give franchisees an end of term notice at least 6 months before the end of the franchise term, or at least 1 month before the end of the term if the term is for less than 6 months.
The notice must state whether the franchisor intends to extend the agreement, or enter into a new franchise agreement. Ideally franchisors would also give reasons for not extending it if applicable, as well as the date of expiry of the franchise agreement. Unless a franchisor does not intend to extend the franchise agreement or enter into a new one, the notice must include a statement notifying franchisees that they may request a disclosure document.
Franchisors and franchisees must also act in good faith when dealing with each other on what actions need to be taken at the expiry of the franchise agreement if it is not being extended. This means acting honestly and not arbitrarily and co-operating to achieve the purposes of the franchise agreement. If you fail to give the franchisee the required notice, or fail to act in good faith, you may be in breach of the Franchising Code and could be subject to penalties.
Don’t miss out on this important step! Diarise dates for providing end of term notices now for all your franchise agreements.
In 2020, Bob Jane Corporation found out the hard way when dealing with ACCC’s concerns regarding franchisor end of term obligations, which resulted in Bob Jane giving a court enforceable undertaking and entering into a compliance program for 3 years. To avoid a similar outcome, it is important for franchisors to ensure that they set up good processes to ensure they comply with their notice obligations under the Code.
If you are unsure about your obligations, you should seek legal advice from a qualified franchise lawyer. By following these tips, franchisors can avoid costly penalties and stay compliant with the Franchising Code of Conduct:
- Keep good records of all communications with franchisees, including end of term notices.
- Be clear and concise in your end of term notices.
- Act in good faith when dealing with franchisees including in respect to actions you both must take at the end of their franchise term.
- Get legal advice if you have any doubts about your obligations under the Franchising Code of Conduct.
Do not hesitate to reach out to us if you want to know more about franchising compliance. Share this article with your fellow franchisors to help them stay compliant!