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When the franchisee can end the agreement

A franchisee can change their mind and end the agreement:

  1. during the cooling-off period, or
  2. within 14 days after receiving leasing information, if they are leasing or occupying premises from the franchisor or their associate.

If options 1 and 2 are not available, a franchisee can ask to terminate the agreement. In this case, terminating the agreement is not guaranteed and will depend on whether the franchisor agrees, or whether it’s allowed under the franchise agreement. Even if a franchisee can terminate, it can end up being very expensive for them.

Cooling-off period rights

For a new franchise agreement

A franchisee has a 14-day cooling-off period after they enter into a new franchise agreement.

Franchisees are entitled to terminate a new franchise agreement within this period.

If a franchisee cools off, they can get some or all of their money back.

For a transferred franchise agreement

A franchisee has a cooling-off period after they enter into an agreement that was transferred to them from another franchisee.

If an existing agreement has been transferred to a new franchisee, they are entitled to terminate by whichever of these happens earlier:

  • 14 days after becoming the franchisee
  • the day they take possession and control of the franchised business.

When the cooling-off period does not apply

For existing franchisees

There is no cooling-off period for existing franchisees who renew or extend an existing franchise agreement.

Franchisees who opt out of cooling-off rights

In some situations, a franchisee can give written notice to opt out of the cooling-off period.

A franchisee can only opt out when they:

  • have recently had the same or a substantially similar agreement with the same franchisor, or
  • currently have the same or a substantially similar agreement with the same franchisor. 

By opting out, franchisees lose the right to terminate a new agreement within 14 days or get any of their money back.

If you’re a franchisee, you should be careful when opting out of your cooling-off rights. It can be difficult to terminate a franchise agreement once it is signed.

Money the franchisee can get back if they cool off

If a franchisee pays money to the franchisor and then changes their mind about a franchise agreement during the cooling-off period, the franchisor must give them back their money within 14 days of being notified by the franchisee.

However, the franchisor can keep the franchisee’s money if:

  • this is included in the franchise agreement, and
  • the money is for reasonable expenses.

Examples of ending an agreement during the cooling-off period

The franchisee ends their agreement during cooling off, after receiving training by the franchisor

The franchisor gave the franchisee some training about the franchise before the franchisee decided to end their agreement during the cooling-off period.

  • The franchisor may be able to keep all or some of the franchisee’s money to pay for this training.
  • The franchisor must return the rest of the franchisee’s money within 14 days.

A new franchisee decides to end their agreement, while the agreement is being transferred to them

A franchisee is transferring their agreement to a new franchisee. The new franchisee decides to end their agreement during the cooling-off period.

  • The franchisee who was making the transfer must refund any money paid to them under the transfer agreement within 14 days of being notified. However, they can also deduct any reasonable expenses that were set out in the transfer agreement. The previous franchisee will be reinstated as the franchisee, if possible
  • The franchisor must also refund the new franchisee within 14 days of being notified, minus any reasonable expenses that were set out in the franchise agreement.

Case study

In 2022, Jim’s Group Pty Ltd paid $24,420 in penalties in its capacity as franchisor of the Jim’s Dog Wash franchise. This was after the ACCC issued it with two infringement notices. One infringement notice alleged that Jim’s Group contravened the Australian Consumer Law by misrepresenting to a franchisee that their cooling-off rights under the franchising code ended 14 days after entering into the franchise agreement or making a payment to the franchisor, whichever was earlier.

Under the franchising code, a franchisee can terminate the agreement and receive a refund within 14 days of signing the agreement, even if they have previously paid a deposit. By making this representation, Jim’s Group may have discouraged Jim’s Dog Wash franchisees from exercising their cooling-off rights where they paid a deposit some time before they entered into a franchise agreement.