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 of 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.
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.
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(2) of the Code, a Franchisor must inform a Franchisee of its intention to Extend the Franchise Agreement, they must give the Franchisee:
- in the case of a Franchise Agreement for a term of more than six (6) months’, at least six (6) months’ notice; and
- in the case of a Franchise Agreement for a term of less than six (6) months’, at least one (1) months’ notice.
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Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013 | Mobile: 0419 726 535
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.