Franchise Disclosure Documents – ACCC issues updated model

The Australian Competition and Consumer Commission (ACCC) recently completed a compliance check review into disclosure practices in food franchising.  In its review, the ACCC identified repeated incidences of the following:

• franchisors making it difficult for prospective franchisees to contact former franchisees;
• inadequate disclosure by franchisors of what essential goods are subject to supply restrictions; and
• franchisors failing to sufficiently disclose key unavoidable ongoing costs, such as rent or wages.

The ACCC found that such practices had the effect of limiting the ability of prospective franchisees to properly conduct due diligence on a franchise system.

Accordingly, the ACCC has released an updated model disclosure document which provides further guidance to franchisors as to the types of information that should be disclosed to franchisees and prospective franchisees.

The guidance provided in the model disclosure document suggests that franchisors should review their disclosure document and have particular regard to the following:

• Franchisors should ensure that the information in their disclosure documents is up to date and no misleading representations have been made.
• Franchisors should ensure that their disclosure document provides comprehensive and meaningful responses to each of the disclosure items so that franchisees can make informed investment decisions.
• Much of the guidance provided by the ACCC relates to ensuring that estimated establishment costs and ongoing fees and payments that franchisees must make are accurate and founded on reasonable assumptions. Franchisors should review their current disclosure document to ensure that they have avoided using excessive ranges and have itemised all the costs that a franchisee might reasonably be expected to incur in setting up and conducting the franchised business.

Please contact our franchising team if you require any assistance with updating your disclosure document.