Reminder to Franchisors: Renewal Notice Obligation

Franchising, Commercial

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DATE PUBLISHED: June 17, 2020

The Australian Competition & Consumer Commission (‘ACCC’) has a clear motive when it comes to enforcing the Franchising Code of Conduct (‘the Code’): to maintain a balance of power in the franchising relationship.

A household name has recently been reminded of how serious the ACCC are about that task. Now is as good a time as any for all Franchisors to take note and remind themselves of their obligations under the Code so as not to land themselves in hot water.

 

BACKLASH FOR BOB JANE

As part of its attempts to protect Franchisees, the Code imposes clear end of term renewal notification obligations on Franchisors. For franchise agreements of six months or longer in length, the Franchisor has up until six months before the end of the term to notify the Franchisee of their intention to extend or renew the franchise agreement. 

Failure to provide the necessary notification can result in a fine of up to 300 penalty units (currently equal to $63,000.00).

The ACCC became concerned that popular tyre retailer Bob Jane T-Mart failed to uphold this obligation. Those suspicions were confirmed as Bob Jane acknowledged that their conduct was likely to be deemed contravention of the Code.

As a result of the breach, Bob Jane was required to provide a court-enforceable undertaking to:

  1. Not terminate existing interim franchise agreements without providing six months’ notice;
  2. Comply with its renewal and extension notification obligations under the Code; and
  3. Implement and maintain a three year compliance program.

The ACCC was further concerned that Bob Jane had failed to provide the necessary disclosure documentation and further undertakings were given in this respect. Should you wish to find out more about your disclosure obligations under the Code, find our article here.


TAKE-HOME MESSAGE

Indiscretions in relation to franchising obligations under the Code can be honest mistakes. Whether or not that is the case is often irrelevant in the eyes of the ACCC.

Our recommendation to all Franchisors is to maintain a running log of all Franchise Agreements contained in your network, ensuring to diarise key notification and other dates throughout the Term.

If your require advice in relation to your obligations as a Franchisee or Franchisor under the Code, please contact us for assistance.

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