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Upcoming changes to the Franchising Code of Conduct

In August 2020, the Government released its response to the Parliamentary Joint Committee on Corporations and Financial Services inquiry into the operation and effectiveness of the Franchising Code of Conduct report: Fairness in Franchising.

The response outlines a number of changes that will be made to the Franchising Code of Conduct (Code) which include the following:

  • Cooling Off/Disclosure Period – the Code will clarify that the cooling off and disclosure periods are measured in calendar days and clarify that the 14-day disclosure period must begin at least 14 calendar days before signing a Franchise Agreement
  • Cooling Off – cooling off rights will be extended to the transfer of an agreement to a new franchisee and where the franchisee enters a substantially new agreement with the franchisor (a deemed transfer) but not to renewals or extensions
  • Early Termination – the Code will allow a franchisee to terminate the Franchise Agreement at any time up to 14 days after the last of certain events have occurred, such as:
      • the agreement being signed;
      • payment being made;
      • disclosure documents being received; and
      • a copy of the terms of the lease having been received (if applicable)
  • Format – Disclosure Document and Franchise Agreement must be made available in both electronic and hard copy format
  • Information Statement (Annexure 2 of the Code) must be provided to prospective franchisees separately and prior to providing the Disclosure Document and other disclosure materials
  • Legal fees – the Code will prohibit (and have pecuniary penalties for) franchisors passing on the legal costs of preparing, negotiating and executing documents to the franchisee (except where it is already incorporated into a joining fee)
  • Lease – clause 13 of the Code (“Copy of lease”) will be amended to require a franchisor’s interests in a leasing arrangement to be disclosed in a new Key Disclosure Information Fact Sheet
  • Penalties for Breaches Doubled – penalties for a breach of the Code will be doubled
  • Financial Information – any financial information provided must be part of the Disclosure Document, which must include a statement on the accuracy and appropriateness of the franchisor’s financial information
  • Significant Capital Expenditure – the Code will:
      • prohibit franchisors from requiring franchisees to undertake significant capital expenditure, except where it has been disclosed before  entering into a Franchise Agreement, is legally required, or is agreed to by the franchisee during the term
      • introduce an obligation to discuss expenditure prior to entering into a Franchise Agreement
      • require disclosure of the circumstances under which the franchisee is likely to recoup the expenditure
      • require franchisors to specify the amount, timing and nature of the expenditure (as practically as possible)
  • Dispute Resolution Processes introduce conciliation and voluntary binding arbitration. The Code will also clarify that, if the person conducting the dispute resolution process determines it is appropriate to conduct a multi-party process, the franchisor cannot refuse to take part in that process
  • Supply Arrangements require franchisors to disclose more information on supplier rebates, commissions and other payments and to disclose any master franchisor controls and/or rebates from suppliers
  • Marketing Funds clarify requirements relating to the treatment and reporting of marketing funds and introduction of penalties for breaches of clauses that relate to the use of marketing funds
  • Exit Arrangements ensure end-of-term arrangements for franchisee goodwill are clearly specified in the Disclosure Document and clarify a franchisee’s entitlement to goodwill in the Franchise Agreement
  • Termination clause 29 of the Code will be amended to require the franchisor to provide the franchisee with 7 days’ notice of a proposed termination in special circumstances (e.g. for fraud or public health and safety), so that a mediator or arbitrator can assist the parties to negotiate
  • Restraint of Trade technical changes will be made to clause 23 regarding the effect of restraint of trade clauses in Franchise Agreements (if the agreement is not extended)

A new mandatory Key Disclosure Information Fact Sheet will be introduced containing information taken from the Disclosure Document and highlighting key information, obligations and risks associated with entering a particular Franchise Agreement (such as financial information to assist prospective franchisees in assessing the time that they will need to commit to the business, franchisee entitlement to goodwill etc)

Information Statement

The Information Statement (Annexure 2 of the Code) will be updated to include the following information:

  • Encourage prospective franchisees to refer to the Disclosure Document to see if a franchise system has a high turnover of sites (to look out for possible ‘churning and burning’)
  • Outline risks with estimating labour costs, particularly for greenfield sites
  • Place an obligation on prospective franchisee to obtain information about employment matters and compliance with employment law
  • Clarify that if the franchisor becomes insolvent, the prospective franchisee may lose the benefit of shared funds (such as marketing funds)
  • Warn prospective franchisees of the need to obtain advice about restraints of trade before entering the agreement
  • Prospective franchisees will be made aware of the use of ‘no agent’ and ‘entire agreement’ clauses

If you require specific advice regarding the content of your Franchise Agreement or would like us to review your franchise documents, please contact us at enquiries@tanglaw.com.au.

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What are the Success Rate and Reasons for Contesting a Will?

74% of family provision claims by family (children or partners, including ex-partners) were successful.
See:  Tilse, C., Wilson, J., White, B., Rosenman, L. & Feeney, R. (2015), “Having the Last Word? Will Making and Contestation in Australia”.  The University of Queensland.

 

Most wills are contested under family provision legislation.
Studies undertaken by the University of Queensland in 2015 found that:
·         86% of claims are brought by immediate family: either children of the deceased (63%) or partners (including ex-partners) (23%) – This means adult children are the most common claimants in Will contests.
·         Contestation is most commonly driven by both exclusion and significant disparity in distribution.

·         When there is a contestation, there is a high rate of success, whether through the Court or through mediation.  74% of family provision claims by family (children or partners, including ex-partners) were successful.

 

COMMON REASONS FOR CONTESTING A WILL

Contesting a Will refers to claims pursuant to the family provision legislation.
The said studies also found that contestation is most commonly driven by:
·         Inadequate provisions to meet the needs of a family member.
·         Type and quality of relationship with the deceased.
·         Exclusion and significant disparity in distribution, where a family member felt a sense of entitlement to a better distribution.

SIGNIFICANCE OF FINDINGS

The above findings are significant to:
·         The Will maker:
With 51% of estates contested were through family provision claims, if you are making  a will, you need to give very careful and detailed considerations to how you should distribute your assets. The more complex the family relationships, the higher the chance of your Will being contested and there being a dispute between your family members upon your death.
At the time of making your Will, you need to consider ways to reduce contestation risk by addressing underlying family dynamics and issues – such as obtaining strategic advice from lawyers, obtain counselling, properly communicate with family, etc. 
·         The Executor or Administrator:
It is highly likely that the deceased representative who has obtained grant of Probate or Letter of Administration (i.e. the executor or the administrator) may find himself or herself having to spend a lot more time dealing with legal proceedings, engage lawyers to defend the contestation, and obtaining expert evidence to defend against a claim, as opposed to getting on with the task of actually administering the estate. This can be extremely time-consuming.
·         A family member who can be a potential claimant:

There is a high success rate for a family member who is seeking family provisions from a deceased’s estate.  Despite there being a Will in place, the Court has the discretion to make orders and award provisions to a family member.


About the Writer

Kelvin Tang

Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.
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4 Changes Foreign Investors Need To Know About Purchasing Property in Australia

The total value of foreign investment in Australia stood at $2.8 trillion at the end of 2014

(Statistic obtained from the Department of Foreign Affairs and Trade)

WHAT ARE THE RECENT CHANGES?

The current Government has introduced various changes to the foreign investment rules and the important ones include:
  1. Tougher penalties for foreigner who breached the rules relating to purchase of residential real estate – e.g. the existing criminal penalties have been increased to $135,000 or 3 years imprisonment or both for individual foreign citizens who breached the law;
  2. Although acquisition of agricultural land holdings are generally not required to be approved by the Foreign Investment Review Board (FIRB), Foreign-owned agricultural land holdings are required to be registered with the Australian Taxation Office’s newly established Agricultural Land Register;
  3. Introduction of an application fee for obtaining FIRB approval – e.g. $5,000 fee for obtaining approval for buying residential land where the price is $1 million; $10,000 fee for obtaining approval for buying residential land where the price is over $1 million and less than $2 million;
  4. Stronger enforcement process – the ATO has now taken over full responsibility for enforcing residential real estate purchases by foreign citizens. 

The recent changes are aimed to have stronger, more effective and more enforceable rules regarding foreign investment. The days where people thought that their breach of the foreign investment laws would never be caught are gone and every foreign citizen must carefully consider the legality of their intended purchase of assets in Australia.

THINGS TO CONSIDER WHEN BUYING RESIDENTIAL PROPERTY

Australia has a long established policy to strictly regulate the purchase of established houses by foreigners in order to maintain sufficient housing supply to its residents.

 

If you are a non-resident foreign person, you should consider the following general rules before buying any residential property:
·         you are prohibited from buying established dwellings(2nd hand house) in Australia;
·      you will need to apply and receive FIRB approval before buying new dwellings (e.g. newly developed apartment) and usually approval will be granted without any condition;
·        you will need to apply and receive FIRB approval before buying vacant residential land for development and usually approval will only be granted under the condition that you must develop the land within certain period of time.

 

 

THINGS TO CONSIDER WHEN BUYING COMMERCIAL/AGRICULTURAL PROPERTY

Whether a non-resident foreign person requires to notify FIRB prior to buying a commercial property depends on if the commercial land is vacant or developed. If the commercial land is vacant (no substantive permanent building on the land), FIRB notification is required. If the commercial land is developed(there is substantive permanent building on the land used for commercial purpose), foreign persons generally do not need to notify FIRB prior to the purchase unless the land is valued more than $252 million.
 
If a non-resident foreign person propose to buy an agricultural land, generally approval from FIRB is not required if the agricultural land valued less than $15 million. Agricultural land means land that is used wholly and exclusively for a primary production business. It is important to understand that “hobby farms” are not considered to be agricultural land and approval from FIRB will be required.


THINGS TO CONSIDER WHEN BUYING BUSINESS ASSETS

Australia usually encourages foreign investment into its business sector and therefore rules regulating business acquisition by foreigners is less stringent than rules regulating purchase of residential properties.
Generally, foreign persons (except foreign government investors) can buy business assets in Australia without approval if the interest to be acquired valued at less than $252 million. If the business is an “agribusiness” then approval is generally not required if the value of the investment is less than $55 million. Agribusiness includes industries such as agriculture, forestry, fishing, meat processing, poultry processing, dairy product manufacturing, grain mill product manufacturing, sugar manufacturing etc.
 

 

Finally, if you are a non-resident foreign person and you have any doubts about your proposed purchase of assets in Australia, you should seek legal advice before signing any contract because fail to comply with the foreign investment laws may result in very severe penalties (including imprisonment) being imposed against you.  
 

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About the Writer

Kelvin Tang

Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.
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Defamation Case: How To Defend a Defamation Action?

The Story

Mr Wright, a shareholder of a company, had been served with a writ alleging he had defamed a company and its managing director in an online shareholder’s forum.

Mr Wright had been advised by the solicitors acting for the company and managing director that the damages could be in the vicinity of $80,000.

Solution

We were instructed by Mr Wright to defend the action and filed a statement of defense raising grounds of honest opinion amongst other defenses. 

Upon investigating further, we discovered the company had more than 10 employees and was therefore ineligible under the Defamation Act to commence a cause of action for defamation in Western Australia. 

 

Outcome

 

We advised the company and the managing director’s solicitors that we would file a notice to strike out the company’s claim against Mr Wright.

 

 

Whilst the managing director was still eligible to continue with the defamation action against Mr Wright, his solicitors agreed to discontinue the company’s claim and settle the managing director’s claim against Mr Wright for $10,000 plus a notice of retraction from the company to Mr Wright.


Writer:

Kim Samiotis is the Senior Solicitor of TANG Legal. Her areas of practice include Defamation Law, Building Disputes Litigation, Wills and Estates Planning, Succession Planning, Deceased estates and Estate disputes. There are many criteria and conditions that apply to each of the categories and the experienced solicitors at Tang Legal are happy to provide further information on your eligibility to make or defend a claim.

T:  (08) 9328 7525 | E:  enquiries@TangLegal.com.au

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Case Study: How Could Our Lawyers Assist You To Start a Franchised Business?

The Story

Tom and Anna operated a successful cleaning business.  They did not want to miss the opportunity to take on more contracts to clean offices; however, they had limited resources (i.e. capital and human resource).  They wanted to grow and expand their cleaning business and began to explore the different options.  They ultimately decided to turn their business into a franchised business.

 

Tom and Anna instructed us to advise and assist them.

Solution


We advised that:

11) There is a mandatory franchising code which must be complied with by franchisers.  Failure to do so will have severe implications.
22) The most valuable assets of the business, being its intellectual property (such as know-how, their brand, business system, etc, which are intangible), must protected. 
33) A major factor contributing towards success of a franchised business is its ability to select the right candidate as franchisee.

Outcome

A franchise structure was established for their business whereby:

 

11) The intellectual property of the business was registered with the relevant authorities and protected via appropriate legal structures being established.

 

22) Multiple levels of entities were established and their sources of revenue were increased.  The structure gave Tom and Anna the flexibility to expand quickly and also to take control if any of the entities runs into troubles.

 

33) Formal agreements and documentations that comply with the franchising code were prepared.
Tom and Anna took full advantage of the established franchise structure and continued to expand their business.  They eventually took the franchised business and expanded to the other States.

About the Writer

Kelvin Tang

Kelvin has over 14 years’ experience practising law in Western Australia. He is the founder and Principal Partner of Tang Law based in Perth, Western Australia. Kelvin is a Registered Migration Agent (MARN: 1386452) and has extensive experience in providing service on Commercial Law, Dispute Resolution & Litigation, Family Law, Wills & Estate Planning and Settlements.
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