Compliance 

Disclosure documents are required to include details of any unilateral variations made by the franchisor in the previous 3 financial years, and the circumstances in which the franchise agreement may be varied unilaterally in the future. 

If certain materially relevant changes occur during the term of a franchise agreement, franchisors must disclose these to franchisees within a reasonable time of not more than 14 days. Such events include commencement of proceedings or court judgments entered against the franchisor, or a change in the majority ownership or control of the franchisor or franchise system, or an associate of the franchisor. 

A franchisor is prohibited from requiring a franchisee to undertake significant capital expenditure during the term of the franchise agreement unless:

• the expenditure is disclosed in the disclosure document given to the franchisee before an agreement is signed
• it is agreed to by the individual franchisee or most franchisees, or
• it is necessary to comply with legislative obligations. 

A franchisor may not unilaterally vary a franchise agreement with retrospective effect unless the franchisee consents in writing.  

Best practice 

Franchisors need to be able to make changes to their franchise system and brand throughout the term of franchise agreements to respond to changing market conditions and consumer preferences. They might need to upgrade their technology or adapt to shocks like the COVID-19 pandemic. Without the ability to change, franchise systems would be unable to compete with nonfranchise businesses.  

Tip for franchisors and franchisees – accept that change will be required and be prepared to embrace changes that benefit customers, support unit performance and improve the operation of the franchise network. 

Franchising can be a good model for innovating and adapting to change. Franchisees on the ground can provide market intelligence and fresh ideas, while a centralised head office can provide the expertise and infrastructure to put ideas into practice. Together they can test, refine, develop and deploy, with much greater chance of success than businesses trying to adapt on their own. 

Some franchisees have reported negative experiences with changes that: 

• were seen to be made solely to benefit the franchisor’s interests, rather than in the spirit of the original agreement or in the interests of the broader franchise system
• resulted in financial loss to the franchisee
• caused ongoing disruption to their business, including frequent operational or marketing changes
• were forces upon them with no consultation, explanation or apparent justification. 

Good change management is essential for guiding organisations through transitions smoothly and effectively.