A review of the Franchising Code of Conduct (Code) in regarding the end of term arrangements that apply to ‘renewing’ and ‘extending’ can be somewhat confusing. There are two options for continuing the franchise relationship at the end of the initial term, namely:
- to renew (Renewed); or
- to extend (Extended) the Franchise Agreement.
Whether a Franchise Agreement is capable of being Renewed or Extended:
- must be disclosed to the Franchisee in the Disclosure Document pursuant to section 18 of the Code; and
- will have different “end of term arrangements” under the Code.
Renewal
Pursuant to section 4 of the Code, a Franchise Agreement is renewed where, during the initial term, the Franchisee exercises an option to renew it. In other words, a Renewal is done at the behest of the Franchisee, subject of course to them having an option under the original Franchise Agreement.
Under section 18(1) of the Code, a Franchisor must inform a Franchisee, in writing, of its intention to Renew a Franchise Agreement. According to section 18 (2), a notice must be given:
- at least six (6) months before the end of the term of the agreement if the term of the agreement is six (6) months or longer; and
- at least one (1) month before the end of the term of the agreement if the term of the franchise agreement is less than six (6) months.
Entering into a new agreement would grant the franchisor the opportunity to change the terms of the existing Franchise Agreement as reasonably required because of changes to the Franchising Code of Conduct (Code) and to suit its business requirements.
For example, if a franchisee is in your opinion making too much money (or too little for that matter) the terms of the Franchise Agreement can be changed by electing to enter into a new agreement which has the effect of extending the agreement.
Extension
The term of a Franchise Agreement is extended under section 4 of the Code, where it is extended, other than because of an option exercisable by the Franchisee during the term of the Agreement. In other words, an Extension is done at the behest of the Franchisor.
Under section 18(1) of the Code, a Franchisor must inform a Franchisee of its intention to Extend the Franchise Agreement, According to section 18 (2), a notice must be given:
- at least six (6) months before the end of the term of the agreement if the term of the agreement is six (6) months or longer; and
- at least one (1) month before the end of the term of the agreement if the term of the franchise agreement is less than six (6) months.
Further references
Legislation
Related articles by Dundas Lawyers
Managing pre-contractual representations in franchising
Does a franchise system need to be registered?
When is your licensee really a franchisee?
Franchisor’s liability for forecasts
Changes to the Franchising Code of Conduct
Further information
If you need assistance with any aspect of franchising, please telephone me for an obligation free and confidential discussion.
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 (preferred) | Mobile: 0419 726 535
e: mburrows@dundaslawyers.com.au
Disclaimer
This article is not legal advice. It is general comment only. You are instructed not to rely on the commentary unless you have consulted one of our Lawyers to ascertain how the law applies to your particular circumstances.