Franchise agreements

The Franchising Code of Conduct applies to all franchise agreements entered into, renewed or extended on or after 1 October 1998 (with some limited exceptions). The Code covers overseas franchisors that have franchisees or master franchisees in Australia.

What is a franchise agreement?

A franchise agreement is an agreement (written, verbal or implied) under which:

  1. one party (the franchisor) grants another party (the franchisee) the right to carry on a business supplying goods or services under a specific system or marketing plan
  2. the business is associated with a particular trademark, advertising or a commercial symbol owned, used, licensed or specified by the franchisor
  3. the franchisee is required to pay, or agree to pay a fee to the franchisor before starting or continuing the business.

Note: A motor vehicle dealership agreement (including a motor boat dealership agreement) is taken to be a franchise agreement even if the above definition has not been met.

Before entering a franchise agreement

  1. The franchisor is obliged to send you a disclosure document, the franchise agreement, and a copy of the Franchising Code. Make sure you receive and read them.
  2. Seek advice from a lawyer, accountant and business adviser.
  3. Do a pre-entry training course.

Pre-entry training course

Free franchise education is available to help you assess business opportunities before buying a franchise.

How to tell if a franchise is genuine

Warning signs that a franchise may be a scam include when the franchisor:

  • claims you can make large amounts of money quickly and with little effort or experience—i.e. ‘get rich quick’ schemes
  • is reluctant to provide you with the contact details of the other franchisees in the system
  • requires you to make a payment upfront before any information is released
  • claims that you must act immediately to avoid losing the ‘amazing opportunity’.

The ACCC strongly recommends that you take steps to identify it is a genuine business and reconsider a business opportunity if you see any warning signs. If you ignore them and accept the offer, you could fall victim to a costly scam.

Setting prices

Franchisees are responsible for setting their own prices. While a franchisor may provide franchisees with a recommended price list, it cannot impose a particular price on franchisees, or a minimum price below which goods or services may not be sold. A franchisor is permitted to set a maximum price for goods or services.

Sourcing stock and services

A franchisor that requires franchisees to purchase goods or services only from a particular supplier or a list of nominated suppliers may be engaging in ‘third line forcing’.

This conduct is a type of exclusive dealing that is prohibited under the Competition and Consumer Act 2010. However, a franchisor can seek protection from legal action by lodging a notification with the ACCC.

A franchisor may require franchisees to purchase goods or services from the franchisor or a related company. These supplier arrangements will only raise concerns if they have the purpose or likely effect of substantially lessening competition.

Read the Competition issues in franchising supplier arrangements guide for further information.

Renewing a franchise agreement when it ends

The Franchising Code doesn’t give franchisees an automatic right to renew their franchise agreement. Whether you have the right to renew your franchise agreement will depend on the terms of your individual agreement.

Before entering into or renewing an agreement, you should ensure you fully understand what will happen at the end of the contract term, and what your rights and responsibilities will be. In particular, you should carefully check whether the ongoing franchising fees and other payments due will increase for the new term.

What is ‘churning’?

Churning is the repeated selling of a franchise site by a franchisor in circumstances where the franchisor would be reasonably aware that the site is unlikely to be successful, regardless of the individual skills and efforts of the franchisee. Such conduct may raise concerns about misleading and deceptive conduct or unconscionable conduct. If you suspect churning, you should contact the ACCC.

More information

Franchising code of conduct
Notifications

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