Real estate group Ray White breaches franchising code of conduct

Ray White has landed in hot water with the ACCC after it breached the franchising code by attempting to terminate an agreement with one of its franchisees early and for no reason.

The franchise owned by Nick Edwards in Charleville, Queensland was operating under a five-year agreement from December 2008 before the master franchise announced it would end the agreement after less than two years.

“The Franchising Code of Conduct provides that, unless there are special circumstances, a franchisor cannot end a franchise agreement without advising the franchisee of any alleged breaches of the agreement and without providing the franchisee time to remedy any breaches,” says acting ACCC chairman Michael Schaper.

Ray White did not explain the reasons for terminating the contract, there were no special circumstances and Edwards wasn’t given any warning. “It is not good enough for franchisors to disregard their obligations under the franchising code of conduct,” he says.

While Schaper says this is not a severely serious breach of the code, it is very important to the individual franchise and so must be acted upon.

“Breaches can occur for a number of reasons. Franchisors may not be aware of their obligations or they don’t bother to get legal advice,” he says.

“In large systems things can break down at an individual level and sometimes a system may comply with the code on large scale but that doesn’t mean they can know what’s going on with every individual franchisee.”

Schaper believes the franchises most in danger of breaching are small franchises with limited resources and businesses that are new to franchising, which are not properly educated.

“There are a significant number of franchisees who aren’t properly informed when they buy a franchise. On the other hand franchisors don’t always understand and are aware of all obligations.”

Education and franchise relationships are absolutely critical to ensure franchises adhere to the franchising code and to maintain successful businesses believes the ACCC.

“One aspect that we stress most about is the culture in the franchise organisation,” Schaper says. “Whoever runs the franchise at the top needs to create a culture of compliance and co-operation.”

“Culture is a hard one. We can’t legislate for culture, we can only educated and advise on it. The real issue is keeping the relationship going for both franchisees and franchisors.”

Once the ACCC became involved, Ray White negotiated with Edwards to settle the dispute and Schaper says they have come to arrangement but the franchise will no longer operate.

“The breach has been registered and presented to the courts and put it on public record,” he says. “Ray White have acknowledged what they did wasn’t appropriate and have taken steps to fix it. They are also required to commit to set up a trade practises law compliances program and staff training programs.”