Real estate industry

Major changes to franchise laws impact the real estate industry

Significant changes to Australian franchise laws, introduced in July, will impact both franchisors and franchisees regardless of expansion plans.

The new laws will apply to new franchisee agreements, as well as renewals, meaning that old contracts will eventually be replaced, despite their length of existence.

O * NO Legal Founder and legal strategist Kristen Porter said the new laws were franchise-friendly and designed to balance the power relationship between the two parties.

“Essentially, the laws almost classify franchisees as consumers, with consumer protections in place,” she said.

“The changes will increase the cost of administering franchise agreements, putting more red tape in place and increasing civil penalties for non-compliance, so it’s critical that all franchisors agree.” with modifications.

At a high level, the updated franchise code of conduct includes increased protection for franchisees, improved disclosure requirements and changes to the dispute resolution process.

The changes also cover:

  • Termination
  • Refresh
  • Costs
  • Marketing Fund
  • Constraints
  • Capital expenditure
  • Modification of the franchise agreement

Some of the most important changes relate to dispute resolution, termination, and business restrictions following termination of an agreement.

Dispute resolution

The new laws aim to allow alternative dispute resolution processes, reducing the need for litigation in favor of mediation or conciliation processes.

“Often franchisors will have an in-house legal team to rely on in the event of a dispute,” said Ms. Porter.

“While franchisees generally do not have access to it, which leaves them with significant external legal costs, which may be inaccessible for some companies.

“This law aims to find a good result through business processes.

“With a dispute, no one ever wins. Even if someone gets everything they want, at the end of the process they still don’t feel like they’ve won, and this has financial and emotional consequences.

Termination

The laws are no longer black and white when it comes to termination, regardless of which party wishes to opt out.

Under the new laws, a franchisee can request an early termination, with the franchisor now required to consider it in good faith.

“In the past, a franchisor could just say ‘no’ to this request,” Ms. Porter said.

“They must now provide a reason why the request was denied. This does not mean that franchisees have the right to leave on request, but their individual circumstances must be taken into account.

On the other hand, franchisors no longer have the right to terminate franchise contracts immediately.

“Under the new laws, franchisors must notify their intention to terminate the agreement, and franchisees now have the option to challenge the decision,” Ms. Porter said.

“For example, in the real estate industry, if a franchise business lost its business license and was not able to operate the business previously, it would have resulted in immediate termination.

“Now the franchisees are able to settle disputes, try to negotiate a way forward and try to save the franchise relationship. “

Trade restrictions

The non-competition clauses will no longer apply under the new franchise laws, as new or renewed franchisees are free to open a new real estate agency under another brand, after the termination of the franchise agreement.

The only exception to this rule is if the franchisee was in violation before the termination.

“This applies to new agreements and to those that have been renewed under new laws,” Ms. Porter said.

“So if a termination takes place before the renewal, the existing clauses will apply.”

Ms. Porter recommends seeking legal advice to fully understand the impact of these changes on your business.


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