New franchising code rules
A new Franchising Code of Conduct was introduced on 1 April 2025. Some rules in the new code apply from 1 November 2025.
Under the new code, when a franchisee is required to undertake significant capital expenditure during the term of the franchise agreement, additional information must be included in the disclosure document. This is to allow for greater transparency between franchisors and franchisees.
Franchisors must discuss this with prospective franchisees before entering an agreement and explain how the franchisee is likely to recoup that expenditure.
The new capital expenditure disclosure obligations come into effect from 1 November 2025. This page includes guidance about these obligations.
View guidance on other changes to the franchising code and when they apply.
On this page
Identifying significant capital expenditure
Identify required or likely significant capital expenditure across the system or to a specific subset of franchisees. This includes those that:
- apply system-wide such as rebranding, IT and system upgrades
- apply on a regular schedule, for example store refurbishment every 5 years
- are triggered by events such as lease renewal, performance reviews, damage, destruction, relocation.
Assess whether the expenditure is significant. This will differ depending on the franchisee and other factors such as size, timing and impact.
Expenditure that is likely to be significant
There is no defined minimum threshold outlined in the new franchising code but expenses may be considered significant in these situations:
- The expenses are large compared to the franchisee's initial investment, profits or turnover.
For example, if you paid $500,000 for the franchise and every 5 years you are required to refurbish the premises for a cost of $100,000, the refurbishment is likely to be significant.
- The expenses would make it difficult for the franchisee to remain solvent or profitable.
For example, a franchisor requires a franchisee to purchase $200,000 of specialised equipment. This represents 60% of the example business’ annual turnover. With loan repayments, rent, wages and royalties, the example business is unlikely to generate enough to cover expenses.
- The expenses go beyond normal repairs, maintenance, end of usable life replacement or normal inventory requirements.
For example, major store refurbishments and fit outs, relocations, rebranding, equipment, software or technology upgrades are all likely to be significant capital expenditure.
Some expenditure may be required by a landlord under a lease.
If you are uncertain about whether an expenditure might be significant, you should seek independent advice to make sure that you satisfy your obligations.
Disclosing significant capital expenditure
Where a franchisee is required to incur significant capital expenditure, the franchise disclosure document must include as much information as practicable. This information includes:
- why the expenditure is needed
- the amount, timing and nature of the expenditure
- the anticipated outcomes and benefits
- the expected risks.
If precise expenditure details aren’t known, it is still important to disclose:
- that the expenditure is possible but not certain
- what events could trigger the expenditure
- examples of similar expenditure
- a reasonable high or low range for the expenditure.
Transparency and clarity are essential. Failure to disclose information, or making false representations or claims about future matters can be misleading under the Australian Consumer Law.
Good record-keeping will make it easier to provide this information.
Update the disclosure document each year and when major changes happen. Also update the Franchise Disclosure Register.
Case study
A gym franchisor plans a rebrand across the network within 12 months. This would mean franchisees have to change corporate branding such as its website, point-of-sale materials, signage, uniforms and its online, TV and print marketing materials. Site sizes and remaining length of term vary. The franchise agreement requires the franchisee incur these costs.
This rebrand is likely to be significant capital expenditure.
When the franchisee must undertake this expenditure during the term of the franchise agreement, the expenditure must be disclosed to prospective franchisees in the disclosure document.
The franchisor should state whether any part of the rebranding will be funded by a specific purpose fund. Reasonable written notice of the rebrand must be provided by the franchisor in addition to consultation with franchisees about the rebrand. This notice should include the timing and proposed cost.
Discussing with prospective franchisees
All significant capital expenditure must be included in the disclosure document and discussed with prospective franchisees before entering an agreement. Franchisors must not enter an agreement unless they discuss all significant capital expenditure with the prospective franchisee and explain how the prospective franchisee is likely to recoup that expenditure.
If an expenditure is required but not disclosed in the disclosure document, the franchisor risks breaching the new franchising code.