Dentons Franchising and Distribution Partner Robyn Chatwood welcomed the release of the Competition and Consumer (Industry Code-Franchising) Regulations 2024 exposure draft but emphasised that the proposed laws might significantly impact the viability of some franchise models in Australia.
“Some of the most contentious aspects of the draft laws mandate that franchisors must provide a reasonable opportunity for franchisees to make a return on their investment. This requirement is likely to spark disputes, as what constitutes a ‘reasonable opportunity’ will vary based on each agreement. The draft laws may inadvertently attract unsuitable franchisee entrants who might misinterpret the regulations as a guarantee on their investment,” Chatwood said.
“Another controversial issue is the new laws requiring franchisors to compensate franchisees for early termination of agreements, which could significantly alter the economics and viability of some franchise models. This may lead to franchisors being more cautious in selecting franchisees, particularly those with less experience. We foreshadow disputes where franchisees have invested in excess of the requirements of the franchise agreements yet expect compensation under the new laws.”
Chatwood continued, “The risk of non-compliance in the franchising sector will increase. The draft laws propose penalties for virtually every substantive obligation of franchisors and franchisees where breached. For example, a penalty of almost $200,000 for a breach of a requirement for a franchisor to keep records for six years.”
Dentons encourages those in the franchise sector to engage in the consultation process and stay informed about developments following the exposure draft.
Dentons – Australian Government releases its new draft franchising law for brief consultation period