Before committing to a franchise business, it is essential to understand the legal nature of the contract you are signing. The purchase of a franchise is a major business decision, and prospective franchisees should be aware of their rights under the law.
A new franchise agreement is a legally binding contract where a franchisor grants a franchisee the operational right to run a business using the franchisor’s brand, established business model, and intellectual property.
If you are considering entering a franchise agreement, you should be aware of the requirements. These legal safeguards exist to level the playing field, protecting you as a local operator (franchisee) from the natural power imbalance held by corporate brand owners (franchisors). To safely navigate this power dynamic, obtaining specialised legal advice and guidance from experienced business advisers is paramount before signing any documentation.
The Competition and Consumer (Industry Codes – Franchising) Regulations 2024 (Cth) – Chapter 2 (‘the Code’)1 regulates the conduct of parties to a franchise agreement. The new Code commenced on 1 April 2025 and applies to franchise agreements entered into, transferred, renewed or extended on or after that date; agreements entered into before that date may remain governed by the former 2014 Code.2
The Code is a mandatory industry code under the Competition and Consumer Act 2010 (Cth), which provides the ACCC with the power to enforce the Code (including by seeking civil penalties) and an avenue for franchisees to take private legal action.3
This regulatory framework, heavily tied to the Franchising Code of Conduct, enforces an overarching legal obligation for all parties to act in good faith.4 The Franchising Code governs the entire lifecycle of the business, protecting the ongoing relationships between the parties from initial signing through to ultimate renewal or termination.
Strict Disclosure and System Requirements
The Code includes strict disclosure requirements which franchisees should be aware of, specifically in respect of the provision of current information material to the running of the franchise business. The required content and form of the disclosure document must comply with the form set out in Schedule 1 to the 2024 Regulations.5
Under most franchise systems, a franchisor must provide prospective franchisees with a comprehensive disclosure document, a copy of the Code, and the franchise agreement in the form in which it is to be executed, at least 14 days before the agreement is signed6 . A short information statement setting out the key risks and rewards of franchising must also be given to a prospective franchisee as soon as practicable after they formally apply or express an interest in acquiring a franchised business.7
This ensures you are fully aware of the ongoing fees, marketing plan frameworks, and corporate advertising structures you will be required to pay into. It also outlines the scope of initial and ongoing training, as well as the level of operational support provided by the brand.
If a prospective franchisee is required to provide significant capital expenditure (a term which is no longer specifically defined under the new Code), franchisors must include in the disclosure document as much information as practicable about the expenditure8 , including:
- the rationale for the expenditure;
- the amount, timing and nature of the expenditure;
- the anticipated outcomes and benefits of the expenditure; and
- the expected risks associated with the expenditure.
The new Code goes further: a franchisor must not require a franchisee to undertake significant capital expenditure during the term of the agreement unless the expenditure was disclosed in the disclosure document, is to be incurred by all or a majority of franchisees and approved by a majority of them, is incurred to comply with legislative obligations, or is otherwise agreed by the franchisee.9
Franchisors are prohibited from entering into a franchise agreement, or renewing, transferring or extending (in term or scope) a franchise agreement, unless they have received from the prospective franchisee a written statement that they have received, read and had a reasonable opportunity to understand the disclosure document (which is required to be provided) and the Code.10 Any payment made by a prospective franchisee in connection with the agreement during the 14-day ‘consideration period’ before signing must also be repaid by the franchisor within 14 days of a written request.11
Franchisees should also be aware that Part 4, Division 3 of the Code restricts certain terms from being included in a franchise agreement.12
For example, a compliant contract must outline clear equity rules, including your future resale rights if you choose to sell the franchise business. Furthermore, the law dictates that a franchisor cannot unreasonably withhold consent to a transfer request13 , and the franchisor must notify you in writing, at least 6 months before the end of your term (or 1 month, for terms of less than 6 months), whether it intends to extend the agreement or enter into a new agreement with you.14
Compliance with strict rules regarding retail prices and supply chains must also remain balanced. For franchise agreements entered into, transferred, renewed or extended on or after 1 November 2025, the agreement must also provide for the franchisee to be compensated if the agreement is terminated early because the franchisor withdraws from the Australian market, rationalises its networks or changes its distribution models, and must provide the franchisee with a reasonable opportunity to make a return on their investment during the term.15
Resolving Disputes in Franchise Agreements
Once a disagreement arises between a franchisee and a franchisor, there are several options available to both parties to resolve the dispute.
If a franchisee has suffered loss or damage by the conduct of a franchisor in breaching the Code, they may be entitled to recover the amount of the loss or damage against a corporate franchisor, or any person involved in the contravention.16
Other options for recovery of damages and/or specific performance may also be available if the franchisor has engaged in unconscionable, or misleading or deceptive conduct.17 The most appropriate option will differ, depending on the specific circumstances of each individual case.
Commercial disputes frequently manifest when an operating agreement is abruptly terminated due to an alleged breach or if a franchisor fails to deliver promised marketing support.
When a dispute arises under a franchise agreement, the appropriate dispute resolution steps must be taken pursuant to the franchise agreement and under the Code.18 Franchisees should note, however, that the mechanisms for dispute resolution provided for under the Code do not affect a party’s right to take further legal action in relation to a franchising dispute.19
Key Considerations
What financial obligations are common within franchise systems (marketing plan)?
When entering modern franchise systems, you will be required to contribute to a collective fund to support the regional or national marketing plan. Beyond paying your upfront initial fee, you must understand these ongoing advertising levies.
Under the law, these marketing funds – along with any other ‘specific purpose fund’ you are required to pay into under the franchise agreement (for example, a technology or IT fund) – are subject to strict annual financial statements, which must be audited unless 75% of contributing franchisees vote otherwise20 , to ensure your money is spent genuinely on promoting the brand, rather than offsetting the franchisor’s internal corporate expenses.
Before signing a new franchise agreement, what physical & property risks should I look out for?
Property and tenure are major risk areas for franchisees. You must carefully verify who holds the commercial lease for your physical premises. If the franchisor holds the head lease and grants you a licence to occupy the location, your right to trade is entirely dependent on that other agreement.
Furthermore, you must clarify who is financially responsible for the initial retail fit-out and whether you will be hit with mandatory refurbishment costs mid-term to meet updated corporate brand guidelines. Where you will occupy premises leased by the franchisor or its associate, the franchisor must give you a copy of the lease (or a summary of its negotiated commercial terms) before the franchise agreement is entered into.21
How does the disclosure document protect my business investment?
The mandatory disclosure document required under the Franchising Code of Conduct acts as a transparency mechanism. It forces the franchisor to provide crucial historical data, including details of past insolvency, current legal disputes, and contact details for existing network members.22
It also clearly outlines the structural nature of your business ownership, defining whether you are building true independent equity or merely leasing operational rights for a fixed window of time.
What should I know about my resale rights if I choose to exit the franchise network early
Your resale rights dictate how and when you can recoup your capital investment by selling the business. While you have the right to find a buyer, the transfer of the business is heavily subject to the franchisor’s formal approval.
However, the law explicitly states the franchisor cannot unreasonably withhold consent to the transfer.23 If the franchisor does not advise you in writing, with reasons, within 42 days of your request that consent is withheld, it is taken to have consented to the transfer.24 You should be aware that the incoming buyer will usually be required to pay a transfer fee, undergo corporate training, and sign a new franchise agreement under the latest commercial terms.
Whether your legal anxieties stem from contractual friction with other franchisees, cross-default risks from concurrent agreements, or a lease negotiation breakdown involving a commercial landlord, establishing a clear legal process is vital to manage sudden corporate costs.
Rose Litigation Lawyers are seasoned litigators who have dealt with a variety of franchise-related disputes. If you need assistance or advice in respect of a franchise dispute, you can contact our office for an obligation-free discussion.
Our experienced team offers tailored guidance to protect your specific needs, ensuring your rights under the law are fiercely defended throughout any franchising disputes.
Regulations
1 Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (Cth) (‘2024 Regulations’). The Franchising Code of Conduct is set out in Chapter 2 of the 2024 Regulations: see s 8. References in this article to ‘the Code’ are to Chapter 2 of the 2024 Regulations. The Code replaces Schedule 1 to the Competition and Consumer (Industry Codes—Franchising) Regulation 2014 (Cth) (‘2014 Code’).
2 2024 Regulations, ss 97–98. Certain provisions applied only from 1 November 2025, including ss 43–44 (compensation for early termination and return on investment) and the financial reporting obligations for specific purpose funds that are not marketing or other cooperative funds: s 97(3)–(7).
3 Competition and Consumer Act 2010 (Cth) pt IVB, ss 51ACB and 51AE; see also ss 76, 80 and 82 (pecuniary penalties, injunctions and damages) and 2024 Regulations, ss 11 and 17 (civil penalty provisions).
4 2024 Regulations, s 18. The obligation also applies to prospective parties to a franchise agreement, and cannot be limited or excluded by the terms of the agreement: ss 18(2), (4)–(5).
5 2024 Regulations, s 20(3) and sch 1.
6 2024 Regulations, s 23(2), (5) and (6). A franchisee may opt out of receiving the disclosure document and the Code where it has, or has recently had, a substantially similar franchise agreement with the same franchisor: s 23(4).
7 2024 Regulations, s 22.
8 2024 Regulations, s 20(4). ‘Significant capital expenditure’ is not defined in the 2024 Regulations; the exclusion-based definition in cl 30(2) of the former 2014 Code was not carried over.
9 2024 Regulations, s 60.
10 2024 Regulations, s 26. Unlike cl 10(1) of the former 2014 Code, s 26 does not refer to the receipt of a non-refundable payment, but it extends to the renewal, transfer and extension of a franchise agreement (and to agreements to do any of those things).
11 2024 Regulations, s 23(6) and (8).
12 2024 Regulations, ch 2 pt 4 div 3 (ss 38–47).
13 2024 Regulations, s 49(2).
14 2024 Regulations, s 36 (agreements other than new vehicle dealership agreements; see s 85 for new vehicle dealership agreements).
15 2024 Regulations, ss 43–44 and s 97(3). Under the former 2014 Code, equivalent requirements applied only to new vehicle dealership agreements.
16 Competition and Consumer Act 2010 (Cth) ss 51ACB and 82; see also s 87.
17 Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’) ss 18 and 20–22.
18 2024 Regulations, ch 2 pt 5 (ss 68–83). Part 5 provides for internal complaint handling procedures, alternative dispute resolution facilitated by the Australian Small Business and Family Enterprise Ombudsman, and arbitration by agreement: ss 69–79.
19 2024 Regulations, s 68.
20 2024 Regulations, s 6 (definition of ‘specific purpose fund’) and s 31; see also s 61. The former 2014 Code regulated only marketing and other cooperative funds; the 2024 Regulations extend these obligations to all specific purpose funds (from 1 November 2025 for funds that are not marketing or cooperative funds: s 97(4)–(5)).
21 2024 Regulations, s 23(2)(b); see also s 50 (the cooling off period may run for 14 days from the day the franchisee is given the lease or occupancy documents, if that is later).
22 2024 Regulations, sch 1, items 4 (litigation), 6 (existing franchises) and 21 (financial details).
23 2024 Regulations, s 49(2); s 49(6) sets out circumstances in which consent may reasonably be withheld or revoked.
24 2024 Regulations, s 49(1) and (3).