FRANCHISE DISCLOSURE DOCUMENT
What is a Disclosure Document?
The purpose of disclosure is to give to a prospective Franchisee entering into a Franchise Agreement (or an existing Franchisee proposing to renew or extend their Franchise Agreement), information to assist the Franchisee to make a reasonably informed decision about the franchise system and the franchised business.
There is an onus on the Franchisor to ensure the information is true, accurate and able to be substantiated.
When do I receive disclosure?
The Franchising Code of Conduct prescribes that a Franchisor must give a current Disclosure Document to:
a prospective Franchisee at least 14 days before the prospective franchisee enters into the Franchise Agreement or pays a non-refundable payment;
a Franchisee renewing or extending their franchise, at least 14 days before the renewal or extension is effective.
Also, under the Franchising Code of Conduct a Franchisor is required to update their Disclosure
Document annually, within 4 months following the end of the financial year.
A Franchisee can request a copy of the current Disclosure Document, although only one request is permitted in any 12 month period.
What is in the Disclosure Document?
The Disclosure Document must be prepared and contain the information prescribed by the Code. Details such as:
the Franchisor's background, education and experience
existence of any past or current litigation
contact details of existing and past Franchisees
information about the number of franchised businesses that were transferred, ceased to operate, were terminated by either the Franchisor or Franchisee, did not extend their Franchise Agreement or were bought back by the Franchisor
restrictions related to how goods and services are supplied or sold
sites or territories
costs ad expenses
The Code provides that where there are “materially relevant facts” which come into existence after a previous disclosure period, then the Franchisor must inform the Franchisee in writing, within a reasonable time not exceeding 14 days after the Franchisor becomes aware of the fact or matter. Eg. a change in the majority ownership or control of the Franchisor.
Get Legal Advice
A Franchise Disclosure Document is typically quite lengthy and can be confusing unless you are familiar with how they are set out and what you are reviewing.
A lawyer familiar with franchising can identify warning signs in the Disclosure Document and Franchise Agreement and make appropriate recommendations to you.
There is an obligation upon Franchisors to ensure their Disclosure Document does not contain any information that is false or misleading, or omit any important information about the franchise.
If your Franchisor has acted in a misleading and deceptive manner and misrepresented information given to you, you may have legal recourse against the Franchisor or other legal remedies available to you.