Business owners in the franchising sector are facing a fresh set of compliance requirements. The Franchise Code of Conduct is undergoing important changes, with new rules set to take effect in April 2025. These updates will impact how franchisors operate, from agreement updates to financial obligations and penalty increases.

To keep you in the loop, I caught up with Senior Associate, Chris Burling from our Legal team to break down what franchisors need to know. Check out our discussion below.

 

 

video transcript

 

1. franchise code of conduct updates – what’s changing?

Chris: The Franchise Code of Conduct was always set to sunset in April 2025, so the government conducted an independent review. Based on that review, they’ve introduced several amendments aimed at increasing compliance and transparency across the industry.

John: So, these changes take effect from April 1, 2025?

Chris: Yes, the majority of the updates will apply from April, but some transitional provisions will take effect in November 2024.

 

2. do all franchise agreements need to be updated?

Chris: Absolutely. Every franchisor must update their template documentation to comply with the new provisions. Any franchise agreements entered into after April 1, 2025, must align with the updated rules.

John: What about existing agreements? Do they need to be updated?

Chris: No, existing agreements will remain as they are, but it’s critical that any renewal terms reflect the updated provisions.

 

3. new obligation – assessing franchise viability

John: One of the key changes is that franchisors must now assess the viability of a franchise before granting it. What does that mean in practice?

Chris: Franchisors now have an obligation to only grant new franchises where there is a reasonable opportunity for the franchisee to make a return on their investment.

John: And do we know what ‘reasonable’ means in the terms of the Code?

Chris: That’s something that will likely be interpreted by the courts in the future. However, many are assuming that franchisors may need to offer longer franchise terms to allow franchisees enough time to recoup their investment.

John: Does this mean accountants will have more work to do in assessing franchise viability?

Chris: Yes, absolutely. Accountants will play a key role in helping franchisees assess the financial model and ensure viability before agreements are signed. They will also be responsible for signing off on advice certificates in many cases.

 

4. franchisee disclosure obligations – fewer documents required

Chris: Previously, franchisors were required to provide franchisees with a key facts sheet summarising the disclosure document. However, this requirement has now been removed, as it was seen as redundant.

John: So, franchisors no longer have to provide the simplified fact sheet?

Chris: That’s correct. The full disclosure document is still required, but the key facts sheet is no longer necessary—which I think most people are happy about.

 

5. increased penalties – higher fines for non-compliance

John: Have penalties increased under the new Code?

Chris: Yes, significantly. The obligation to act in good faith, which has always been part of the Code, now carries a penalty of 600 penalty units—which is substantially higher than before.

John: So, the key takeaway here is that franchisors must ensure compliance, because the financial consequences of non-compliance are now much higher.

Chris: Exactly. Compliance is key, and franchisors need to act now to update their agreements and prepare for these changes.

 

we’re here to help

If you’re a franchisor, now is the time to review and update your agreements to ensure compliance by April 2025.

If you’d like to speak to Chris Burling or our legal team about what these changes mean for you, reach out today.

For any questions, reach out on 1300 BDEPOT or email us at oneplace@businessdepot.com.au.

 

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