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.
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.
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(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.
Further references
Legislation
Further information about franchising
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
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
Related insights about franchising
-
Overview of marketing funds for franchises
Discover how the Franchising Code of Conduct affects franchisees and their obligations. Learn what franchisors must now include in their Disclosure Document and how marketing funds must be managed. Get all the details in this informative article.
-
What exactly is a Franchise Agreement?
Franchising agreements are legally binding relationships between franchisors and franchisees. But what makes them different from other agreements? Learn more about the key clauses of the code of conduct that must be observed in order to ensure a successful franchising agreement.
-
Franchisor liability for misleading forecasts
An overview of legal requirements for making forecasts in a franchisor-franchisee relationship, and guidance on how to make forecasts that are legally compliant, are explored in this article. Learn how to protect franchisors and franchisees from legal action.
-
Does a franchise system require registration?
This article provides an overview of the legal requirements for franchisors in Australia. Contrary to popular belief, there is no requirement to register a franchise system in the Code, meaning a franchise does not need to be ‘registered’ in Australia.
-
Franchisors’ end of term arrangements – valuation of goodwill versus risk of competition
Section 23 of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (Code) limits Franchisors in their ability to include restraint of trade clauses in Franchise Agreements, protecting Franchisees if the Agreement is not renewed. Franchisors must be aware of the implications of this Regulation when deciding not to renew an Agreement.
-
When is a licensee really a franchisee?
This article dives into the details of franchisor/distributorship relationships, exploring elements, examples, and control needed to determine the distinction. Get insight into what constitutes a system or marketing plan, and learn what type of ‘helpful suggestions’ qualify.
