Update or Wait?
By Marianne Marchesi, Associate, MST Lawyers
The new Franchising Code of Conduct has given franchisors a ‘grace period’ for updating their disclosure documents to comply with the new Code. Namely, if a franchisor has an existing disclosure document as at 31 December 2014, then they are not required to update the disclosure document until 31 October 2015. It is important to note that this grace period only applies to the disclosure document – franchisors must ensure that they otherwise comply with the new Code as of 1 January 2015.
Should you update?
Despite this grace period, there is merit in updating your disclosure document to comply with the new Code from 1 January 2015.
From a practical sense, if your disclosure document is updated in line with the new Code from 1 January 2015, the end of financial year update process will be less cumbersome and time consuming than if you add to that process the ‘new Code’ update.
The new Code has introduced some new prohibitions on franchisors. For instance, under the new Code there is a prohibition on franchisors imposing significant capital expenditure on a franchisee. There are certain exceptions to this, including where the expenditure is disclosed in the disclosure document. Also, a franchisor can only expend marketing fees received from franchisees on certain expenses, including expenses that are legitimate marketing or advertising expenses or expenses that have been disclosed in the disclosure document. It is therefore advisable to update your disclosure document now so you can get the benefit of these exceptions.
Further, as a matter of best practice, updating your disclosure document from 1 January 2015 will demonstrate a desire to fall under the new regime as early as possible. It may also help to avoid confusion internally and amongst franchisees as to the extent to which you are complying with the new Code.
How can we help?
MST Lawyers can assist you in updating your disclosure document to ensure it complies with the new Code. However, whether you decide to update your disclosure document now or closer to 31 October 2015, we can also help you review your internal processes and your franchise agreement to comply with the new Code from 1 January 2015.