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The Five W’s of Disclosure Statements

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Franchisors operating in the retail context need to be aware of their obligations under each State-based retail leasing law (“Retail Leasing Laws”). In many franchise networks, the Franchisor will hold the head lease and grant franchisees a right to occupy the premises. This relationship attracts various obligations on the Franchisor’s part to disclose information relating to the lease.

Who needs to provide a disclosure statement?

Retail Leasing Laws require a lessor to provide a lessee with a disclosure statement before the lease is entered into. The definition of ‘lessor’ includes any person who grants the right to occupy premises under a lease. In all States except Victoria, this includes Franchisors. The definition of ‘lease’ is also designed to capture sub-leases and licences.  

What information needs to be provided?

A disclosure statement commonly contains the following information:

  • Rent and outgoings payable
  • Term of the lease
  • A description of the premises
  • Whether the lease contains an option to renew
  • Details of any existing  or planned works or redevelopments
  • Trading hours
  • A description of anchor tenants

When should a disclosure statement be provided?

In all States and Territories except South Australia and the Australian Capital Territory, Franchisors must provide the disclosure statement to the Franchisee 7 days before the licence is entered into.

In South Australia, the disclosure period is any time prior to the licence being entered into, and in the Australian Capital Territory, the disclosure statement must be provided at least 14 days before.

Where are the premises?

A Franchisor’s obligations in relation to the disclosure statement vary from state to state.

In Victoria, Queensland and New South Wales, a national harmonised disclosure statement is now used. Each other State and Territory in Australia has its own prescribed form of the Disclosure Statement.

In Victoria, Franchisors are not required to provide franchisees with their own disclosure statement. The Victorian Retail Leases Act allows Franchisors to provide franchisees with a copy of the disclosure statement provided by the landlord. However, Franchisors should still be careful to ensure they are providing up to date information.

Why?

Franchisors should ensure that their disclosure statements are complete for the purposes of the Retail Leasing Law in the relevant state. The consequences of non-compliance can be significant, with some States imposing penalties ranging from $1000 to $10,000. If information in the disclosure statement is incomplete, materially false, or misleading, franchisees may terminate the licence agreement. Further, if the Franchisee has suffered damage due to a false or misleading representation, the Franchisor may be liable to pay compensation for the damage suffered.

Franchisors should carefully review their leasing arrangements and obtain legal advice to ensure compliance with the Retail Leasing Laws. Please feel free to contact MST’s franchising team if you would like to discuss.

Author: Marianne Marchesi

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