Franchisors – are you ready for the new unfair contracts rules?

NotebookThe new unfair contracts rules will apply to protect small businesses in standard contracts that are made or varied from 12 November 2016.

Franchisors should already have amended their agreements and disclosure documents, and included the new information statement in their document packages, following the earlier amendments to the Franchising Code of Conduct that took effect last year.

Franchisors also need to remember to keep their disclosure documents up to date.

The unfair contract rules protect small business by prohibiting standard contract provisions which:

  • unfairly advantage one party to the contract over the other party,
  • aren’t reasonably necessary to protect the advantaged party’s legitimate interests, and
  • would cause financial or other detriment to the disadvantaged party.

Early discussion of the unfair contracts legislation has been mixed, with comments ranging from “don’t worry as it will take years for court decisions to clarify the meaning” to “abandon standard forms and negotiate all contracts”.

But there are some practical steps that franchisors can take.

In implementing the new unfair contracts law as far as it applies to franchisors, the ACCC has said that it will have particular regard to:

  • clauses that give the franchisor unconstrained power to unilaterally vary agreements or operations manuals,
  • broad restraint of trade clauses,
  • excessive liquidated damages, and
  • unreasonable termination clauses.

Contact us for a review of your franchise documents.

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