Legal Insights

Government enacts changes to Franchising Code for new car retailing – a sign of things to come

By Jessica Reid & Elise Pascoe

• 05 June 2020 • 3 min read

Changes to the Franchising Code of Conduct affecting new car retailers have started one month earlier than expected

We published an article on 31 March 2020 (which, with all that has occurred since, both to the new car retailing industry and society generally, feels like a lifetime ago) summarising the changes proposed to the Franchising Code of Conduct (Code) affecting new car retailers. These changes were set out in the Exposure Draft of the Competition and Consumer (Industry Codes— Franchising) Amendment (New Vehicle Dealership Agreements) Regulations 2020 (Exposure Draft).

Among other things, our article (available here) explained what these new changes would practically mean for vehicle manufacturers and dealers, and set out some of the political background underpinning the proposed amendments. Importantly the changes only apply to ‘new car dealership agreements’ which has a defined meaning in the regulations.

Our article also confirmed (as proposed at the time) that these changes were due to come into effect on 1 July 2020. However, at the end of May, the Government caught many by surprise (including most of the sector) by passing the regulations with an effective date of Monday, 1 June 2020. So the changes to the Code are now in effect and operative, a month earlier than expected.

What do the changes mean?

Overall, no substantial changes were made to the Exposure Draft by the final regulations (save for the commencement date[1]). To remind you of some of the key learnings from our previous article, we explained the following – refer to our previous article for more detail:

  1. End of term notifications, explanations and winding down plans

    Both franchisors and franchisees need to provide notice and reasons if they do not intend to extend their current franchise relationship, or enter into a new one, and enter into a collaborative winding down plan with the intent of ensuring practicality and fairness.

  2. Revised capital expenditure disclosure

    Franchisors would be wise to provide additional and perhaps tailored disclosure around future capital expenditure requirements (which are now more prescriptive) in their disclosure documents, and are required to engage in consultation with the franchisee on this point in certain scenarios.

  3. Access to multi-party dispute resolution

    There is now an enshrined right for applicable franchisees to engage in multi-party dispute resolution - as in, two or more franchisees in the same network may require the franchisor to deal with them together to resolve a dispute.

What should franchisors that enter into ‘new car dealership agreements’ do now?

To comply with the changes that are now in operation, affected franchisors should be doing the following:

  • updating Franchise Agreements and Disclosure Documents (particularly to account for the heightened capital expenditure disclosure obligations);
  • updating internal processes to enable the tracking of franchise agreement term expiries and provision of the end of term notifications within the 12 month required time frame; and
  • considering what is best to include in a winding down plan, so that the ground work is done for when they are needed in future. It may be that, where and when appropriate, franchisors would want to consult with dealer advisory councils on this issue.

Whilst purely speculative, these changes may provide a small taste of what is to come when the Taskforce releases its findings and they are translated into more general changes to the Code.

[1] There are some transitional provisions. The requirements in 1 and 2 below only apply to agreements entered into on or after 1 June 2020, and will only apply to agreements entered into before the commencement date if they are renewed/extended. Whereas 3 applies to all agreements, irrespective of whether the relevant agreement was entered into before or after 1 June 2020.

Need advice to ensure you are well placed to comply with the revisions to the Code?

By Jessica Reid & Elise Pascoe

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