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Franchise review pushes for 'good faith' provision for Frachising Code

Written on the 17 May 2013

BRW Online
By Jane Lindhe

Franchisors would have an obligation to act in “good faith” when dealing with their franchisees, especially when ending a contract, an independent review of the $130 billion franchising sector has recommended.

Despite the sector’s initial lobbying against the move – which essentially recognises the goodwill (financial or otherwise) that a franchisee has brought to a business – the four-month independent review, led by Alan Wein, has recommended the “strengthening of obligations of parties to act in good faith in a franchise”.

Wein’s review is the fourth major national review of the franchising sector and industry code of conduct in seven years. Read the report here.

In the past franchise groups have argued that the fundamentals of franchising as a business mean that the franchisor, as opposed to the franchisee, builds the business and accepts the majority of the risks involved. But at the risk of having seperate laws across the states, Franchise Council of Australia Deputy Chairman Stephen Giles says the industry body worked closely with Wein to ensure the wording of the recommendations provided “greater clarity” to franchisees without restricting the trade of franchisees.

Wein has made special mention to exclude from the good faith provisions any guarantee that a franchise agreement would be immediately renewed following the end of an agreement. He also recommended the rules “not be defined”, instead the “unwritten law relating to good faith should be incorporated in a manner similar to the unconscionable conduct prohibition set out in section 20 of the Australian Consumer Law”.

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