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 code:
- new rules apply to franchise agreements entered into, extended, renewed or transferred from 1 April 2025.
- some rules only apply to franchise agreements that are entered into, transferred, renewed or extended on or after 1 November 2025.
This page includes guidance about these rules.
View guidance on other changes to the franchising code and when they apply.
On this page
About franchise agreements
It's the most important document
A franchise agreement is the most important document in a franchising relationship. It is a contract where a franchisor gives a franchisee permission to run a business under their franchise system.
The franchise agreement also sets out the rights and responsibilities for the franchised business and each other.
Franchisees usually enter a franchise agreement by signing a written document, but a franchise agreement can also be oral or implied.
If you are buying a franchise, you will need to enter a franchise agreement. See actions you should take before you enter a franchise agreement.
Franchisors must give prospective franchisees a copy of the franchise agreement to consider during the disclosure period. Apart from minor changes, the agreement must be in its final form.
Certain features must be present
Under the franchising code, an arrangement is considered a franchise agreement if all 3 features are present:
- One person (the franchisor) grants another person (the franchisee) the right to carry on a business in Australia supplying goods or services under a specific system or marketing plan. The business is substantially determined, controlled, or suggested by the franchisor or its associate.
- The business is associated with a particular trademark, advertising or a commercial symbol owned, used, licensed, or specified by the franchisor or its associate.
- The franchisee must make, or agree to make, certain types of payments to the franchisor or its associate, before starting or continuing the business.
Sometimes an agreement isn’t called a ‘franchise agreement’, but if it has certain defining features it is considered a franchise agreement and the franchising code applies.
The franchising code doesn't apply to some arrangements
In some circumstances, arrangements may look like a franchise agreement, but the franchising code doesn’t apply.
See more information about when the franchising code doesn't apply.
What an agreement should include
All franchise agreements should include:
- the fees the franchisee pays
- the term or beginning and end date of the agreement
- franchisee rights and restrictions when using the franchisor’s branding and other intellectual property
- any equipment and supplies the franchisee must buy for the franchised business
- if the franchisee must participate in promotions and local area marketing
- a reasonable opportunity to make a return on investment, during the agreement, on any investment required by the franchisor
- the rules for selling the franchised business
- the process the franchisee and franchisor must use to settle disputes
- when and how the agreement can be terminated, including terms for the franchisor to pay fair compensation for early terminations
- any rules the franchisee must follow when the agreement ends.
New code rules for franchise agreements
Franchise agreements entered into, transferred, renewed or extended on or after 1 November 2025:
- must allow the franchisee a reasonable opportunity to earn a return on their investment
- must provide for compensation for early termination when a franchisor:
- withdraws from the Australian market
- rationalises its networks in Australia - for example, the franchisor reacquires certain franchised territories for the purposes of operating corporate owned stores.
- changes its distribution models in Australia.
The franchising code also includes rules about what should be in a new vehicle dealership agreement.
Franchisees may waive the 14-day cooling-off period for new franchise agreements if:
- the franchisee has or had a similar agreement recently with the same franchisor that is substantially the same as the franchise agreement, and
- the business that is the subject of the franchise agreement is the same or substantially the same as the business that was the subject of the other agreement.
What shouldn't be in an agreement
Often franchise agreements favour the franchisor because it’s usually the franchisor who has written the agreement. While it’s not against the law for franchisors to write the franchising agreement, it must follow certain rules.
There are several laws that work together to put limits on what can be in franchise agreements. They include:
- the franchising code
- contract law
- the Competition and Consumer Act 2010.
Find out more about franchising laws including the code.
Certain rules in the franchising code
Under the franchising code, franchise agreements shouldn’t include:
- unreasonable terms that prevent a franchisee from working elsewhere once the agreement ends or if it is not renewed or extended, such as unreasonable restraint of trade clauses
- terms requiring the franchisee to pay for franchisor’s costs when settling a dispute
- terms giving franchisors the ability to make - without written consent from the franchisees - changes to franchise agreements that apply retrospectively
- general releases of liability that favour the franchisor. This means a franchisee agrees to not holding a franchisor responsible even if a franchisor did something wrong
- waivers of any statements the franchisor makes to franchisees, either verbally or in writing
- restraint of trade clauses that would apply if the agreement ends, if certain conditions are met.
If you’re a franchisor, you must not include terms in a franchise agreement that are prohibited under the franchising code. If you do so, you may face penalties.
Unfair contract terms laws
Most franchisees in Australia are likely to be protected by the unfair contract terms laws. These protections make it unlawful for businesses to offer or enter into a small business or consumer contract containing unfair contract terms. Significant penalties can apply.
It’s common for a franchise agreement to be a standard form small business contract, even if the franchisee can negotiate minor changes to terms.
Our report on unfair contract terms in franchise agreements helps identify unfair contract terms.
Reasonable opportunity to make a return on investment
New code rules for making a return on investment
All franchise agreements, entered into, renewed or extended on or after 1 November 2025 must give franchisees a reasonable opportunity to make a return on any investment required by the franchisor, during the term of the agreement.
A return on investment (ROI) refers to the franchisee’s ability to recover the up-front investment required by the franchisor and still make an ongoing profit from the business.
Costs may include the franchise fee, fit out of the premises and lease costs and purchase or lease of equipment.
What counts as a reasonable opportunity
A reasonable opportunity means what a typical person would see as fair and reasonable, based on factors that may include:
- the duration of the agreement
- the terms and conditions of the agreement
- the underlying business model
- the amount of the investment
- business type
- location
- costs and fees
- economic conditions
- regulation
- competition
- franchisee’s skills and resources
- level of franchisor support
- length of agreement.
Whether an opportunity is reasonable will depend on the terms of each agreement.
A reasonable opportunity doesn’t mean that the franchisor guarantees the profitability or the success of a business. It also doesn’t remove the inherent risks of running a business.
However, franchisees must have a reasonable opportunity to recoup any required capital investment during the life of the agreement.
What franchisors should do to provide a reasonable opportunity
The franchisor should make sure that the duration of the agreement is fair and reasonable.
It should be long enough to allow franchisees to recoup their investment and make a return on their investment.
This may involve making sure the capital investment is appropriate given:
- the business model
- the ability to recoup any capital investment over the life of the agreement.
It may also involve bringing to the attention of prospective franchisees any matters that depart from usual business practices within the sector.
The commercial terms of the agreement should be fair and reasonable. This may involve:
- ensuring their business model is not flawed or misleading such that a profit is not possible or is highly unlikely.
- considering the costs and profits of franchisor-owned outlets.
- avoiding excessive fees or tight margins
- providing realistic, evidence-based financial information to prospective franchisees
- avoiding saturating markets
- having carefully thought-out franchisee selection criteria
- avoiding granting a franchise to a prospective franchisee that doesn’t have the skills and experience necessary to have a chance of success, or providing such a franchisee substantial, timely, proactive and ongoing training and support.
Examples of where it is more likely a reasonable opportunity has been provided
- The duration of the agreement is fair and reasonable.
- The commercial terms of the agreement are fair and reasonable by industry standards and the investments required over the term of the agreement are not significant.
- Any profit or earning projections provided are based upon historical data.
- Most franchisees become profitable within the period that is normal for the underlying business model.
- The business model allows long-term viability and fair margins.
Examples of where it is less likely a reasonable opportunity has been provided
- The duration of the agreement is too short to recoup the investment required, such as:
- the duration of the agreement and the lease are not aligned so that the cost of the landlord refurbishment requirements late in the franchise agreement cannot be recouped
- the franchise agreement duration falls short by both industry standards and the underlying business model.
- The commercial terms of the agreement or transaction are significant and there is a greater risk that the franchisee may not recoup their investment, such as:
- the underlying business model requires high investment by industry standards but provides for below average turnover or profit.
- it is difficult to make a profit after franchise fees and other operating costs
- the franchisor has provided misleading profit or earning projections
- there are too many outlets or competitors competing in one area
- the same location has previously been run at a loss.
- 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.
Case studies of reasonable opportunity to make a return on investment
An undeveloped site
A fast-food restaurant franchisor Jay’s Burgers requires a prospective franchisee to pay for a large store fit-out and to purchase costly equipment.
The franchisor is aware that a return on investment for an undeveloped site is likely to take 4 years. They are aware from:
- industry data
- previous franchisees operating in similar circumstances
- its business model
It is unlikely that a franchise agreement term of 5 years would provide a reasonable opportunity for a return on investment given the return on investment timeline and high set-up costs. This is especially true if the margins are also tight.
Based on the business model and up-front costs, the franchisor should offer an agreement with a longer duration to allow the franchisee a reasonable opportunity to recoup their costs, establish the store and become profitable. The franchisor must discuss the investments required with prospective franchisees and disclose them in their disclosure document.
Sale of a corporate store
Jay’s Burgers also operates a corporate store that a prospective franchisee would like to acquire. Trading data held by the franchisor shows that the store is profitable. The store is operating within normal parameters for a Jay’s Burgers franchise store. The landlord will grant the franchisee a new lease on the same commercial terms as the franchisor’s lease for 7 years. The buyer meets the franchisor’s published criteria for prospective franchisees. The franchisor imposes a charge for the acquisition of the business as a going concern, inclusive of goodwill.
Jay’s Burgers must make sure that this price is reasonable given the trading data it holds for the store, comparable stores, and the duration of the agreement.
Sale of an existing franchise
One of Jay’s Burgers franchisee-held stores is performing poorly. The franchisee wants to sell their store. The franchisor holds historic trading data for the store that shows it has been profitable but has made recent losses. The store is operating within normal business parameters but is under-performing because of health and personal difficulties of the current franchisee.
The franchisee’s asking price for the business includes goodwill. The landlord will grant the buyer a new lease on similar commercial terms for 7 years but requires a substantial refurbishment.
The prospective buyer is an existing successful multi-unit franchisee familiar with the business model. They have enough finance, meet Jay’s Burgers’ recruitment criteria and have the skillset to improve the performance of the store.
This transaction is an exception to the usual scenarios and the franchisor should make sure that the prospective buyer:
- understands the costs and risks
- can improve the performance of the store
- has a reasonable opportunity to earn a return on their investment, including the cost of the landlord-required refurbishment.
The franchisor must act in good faith to both the existing and prospective franchisees and not unreasonably withhold consent to the sale. That said, the franchisor should consider whether to withhold consent if, in all the circumstances, it considers that the prospective franchisee is unlikely to have a reasonable opportunity to earn a return on investment.
Restraint of trade clauses
Under the new franchising code, a franchisor must not include a restraint of trade clause to a franchise agreement, which would apply when the agreement ends, when certain conditions are met.
This requirement applies to franchise agreements entered into, renewed, extended or transferred from 1 April 2025.
It also applies whether the clause is in the franchise agreement itself or in a referenced or attached document.
The certain conditions that must all be met are:
- an option to renew or extend existed in the agreement
- the franchisee gave written notice to renew or extend before expiry, requesting terms that are substantially the same as those in the franchisor’s current standard agreement and terms that apply to other franchisees or prospective franchisees
- the franchisee met all the renewal or extension conditions
- the franchisee was not in serious breach of the agreement
- the franchisee didn’t misuse IP or breach confidentiality
- the franchisor chose not to renew or extend the agreement despite the franchisee’s valid request, and
- one of the following applies:
- the franchisee claimed compensation for goodwill, but only received a nominal or inadequate amount, or
- the agreement did not permit the franchisee to claim compensation for goodwill at all.
Restraints of trade clauses still apply if the agreement was ended early due to the franchisee being in breach the franchise agreement.
As well as complying with the new code obligations, a restraint of trade clause must not be unfair or go beyond what is reasonably necessary to protect the franchisor’s legitimate interests. See examples in our Unfair contracts terms in franchise agreements report.
Case study of a restraint of trade clause
Non-renewal of a franchise agreement
A franchisee entered a dog grooming franchise agreement with franchisor Jay’s Strays on 30 April 2025. The term of the agreement was 5 years and included a conditional right to renew or extend the agreement for a further 5 years if the franchisee enters a new agreement.
The agreement also included a post-term restraint of trade clause that prevented the franchisee from operating a dog grooming business anywhere within its exclusive territory for a period of 12 months. The agreement did not allow for the franchisee to claim or be paid genuine compensation for goodwill.
The franchisee tried to renew or extend their 5 year agreement in 2030 and met all of the relevant criteria. The franchisor refused to renew or extend the franchise agreement and, therefore, the agreement ended on 29 April 2030.
The franchisor cannot rely on or enforce the post-term restraint of trade clause unless it pays the franchisee genuine compensation for goodwill.
Accepting the terms of a franchise agreement
Franchisees choose to accept the terms of a franchise agreement.
If there are terms in the franchise agreement that don’t work for you, negotiate changes before you sign up. Once an agreement is signed, you have to follow its terms.
Some terms in a franchise agreement, such as terms about supply arrangements, are common across most franchise systems. Supply arrangements in a franchise agreement can prevent the franchisee from shopping around for cheaper or different quality supplies. It isn't necessarily against the law for franchisors to have these arrangements in place. Franchisors may not want to remove these arrangements from their franchise agreement.
If the franchisor is not willing to negotiate terms, it may be better to walk away. The easiest time to withdraw from a bad agreement is before you sign or before you pay money during the consideration period.
Changing a franchise agreement
Before it is signed
A prospective or existing franchisee can negotiate changes to a franchise agreement before they enter into it, but the franchisor doesn't have to agree.
A franchise agreement must be given to prospective franchisees in its final form, apart from some minor changes. Minor changes during disclosure are allowed, but these are limited to:
- giving effect to a franchisee’s request
- filling in required particulars
- reflecting changes of address or other circumstances
- making a minor clarification
- correcting errors or references.
After an agreement has been signed
After an agreement has been signed, the franchisor usually can’t change a franchise agreement unless the:
- franchisee agrees
- agreement allows for this.
One party making changes to an agreement after it has been signed is sometimes called unilateral variation. If a franchisor does this, they must include the following in the disclosure document:
- information about variations that have happened in the last 3 financial years
- when the franchise agreement may be unilaterally varied in the future.
Under the code, a franchisor cannot change a franchise agreement to apply to previous situations or to deal with the past, unless the franchisee agrees to this in writing.
Franchisees should get legal advice before signing to understand what changes a franchisor can make.
If you’re thinking about buying a franchise, take our free online education course. It explains franchising and franchise agreements in more detail.
Ending a franchise agreement
See information about ending a franchise agreement, which covers new rules about compensation for early termination and the cooling-off period.