Franchising is one of the most structured forms of commercial relationship in Australian law. It is also one of the most regulated. The Franchising Code of Conduct — a mandatory industry code under the Competition and Consumer Act — imposes disclosure, conduct, and dispute resolution obligations that apply to every franchise arrangement in Australia.
Whether you are considering franchising your business or investing in a franchise, understanding how the Code works — and where franchising disputes most commonly arise — is essential before committing to the model.
What Is a Franchise?
Under the Franchising Code of Conduct, a franchise agreement exists where:
- There is an agreement (written, oral, or implied)
- One party (the franchisor) grants another party (the franchisee) the right to carry on a business
- The business is associated with the franchisor’s trademark or brand
- The franchisor has significant control over, or provides significant assistance in, the franchisee’s method of operation
- The franchisee must pay — or agree to pay — the franchisor an amount (whether as a fee, royalty, service charge, or otherwise)
This definition is deliberately broad. Many arrangements that are not formally labelled “franchises” — licence agreements, distribution agreements, dealer agreements — may fall within the Code’s definition and therefore attract its obligations. Businesses structuring commercial distribution or licensing arrangements may want to consider whether the Code applies.
The Franchising Code of Conduct: Key Obligations
The Franchising Code (most recently updated in 2025 following a significant overhaul) is a mandatory industry code. It cannot be contracted out of. Any franchise agreement that attempts to reduce franchisee rights below the Code’s standards is ineffective to that extent.
Disclosure
Franchisors must provide prospective franchisees with a Disclosure Document at least 14 days before the franchisee enters the agreement. The Disclosure Document is a prescribed-form document that sets out detailed information about:
- The franchisor’s background and history
- The franchise system — its history, size, and financial position
- Costs and fees — both upfront and ongoing
- Financial performance representations (what earnings a franchisee can expect)
- The territory the franchisee will operate in, and whether other franchisees or the franchisor can operate nearby
- Key contract terms
- Details of any pending or resolved legal proceedings involving the franchisor
- Contact details of current and former franchisees
The Disclosure Document is not just a formality. It is often the principal document a franchisee uses to assess whether to invest. Franchisees who discover that information in the Disclosure Document was inaccurate or incomplete may have remedies including termination of the agreement and damages.
Franchisors must update the Disclosure Document annually (within four months of the end of each financial year) and provide updates to franchisees whenever a significant change occurs.
Information Statement
Before providing the Disclosure Document, franchisors must provide prospective franchisees with an Information Statement — a short, plain-English summary of the key risks and matters to consider before entering a franchise.
Cooling-Off Period
Franchisees have a 14-day cooling-off period after entering a franchise agreement (or paying any amount). During this period, the franchisee can withdraw from the agreement and receive a refund of all amounts paid, less the franchisor’s reasonable pre-agreement expenses.
This right cannot be contracted out of.
Good Faith
The Franchising Code imposes an obligation on all parties to act in good faith in their dealings with each other — including in negotiating the agreement, performing it, and during dispute resolution. Good faith includes acting honestly, with foresight of the interests of the other party, and not unconscionably.
This obligation has teeth. Franchisors who exercise contractual rights in ways that are commercially unconscionable — even if technically permitted under the agreement — may be found to have breached the good faith obligation.
Disclosure of Marketing Fund
Where franchisees are required to contribute to a marketing fund, the franchisor must provide annual audited accounts of the fund’s receipts and expenditure. The Code contains specific rules about how marketing funds can be used.
End of Term
The Franchising Code contains specific provisions about what happens at the end of a franchise term — including disclosure of renewal terms, rights around the goodwill the franchisee has built up, and (in some circumstances) compensation if the franchisor does not renew.
For Franchisors: Key Considerations
Is Your Business Ready to Franchise?
Franchising is not suitable for every business. The decision to franchise should be made on the basis of a genuine assessment of whether the business:
- Has a proven, replicable system that can be documented and taught
- Has sufficient brand recognition or market differentiation to justify the franchise fee
- Has the management capacity to support a network of franchisees
- Is financially sustainable at the franchisee level (i.e. franchisees can make a reasonable return)
Franchising a business that is not genuinely proven, or where the unit economics do not work for franchisees, tends to produce poor outcomes for all parties.
Documentation
To franchise effectively, a business needs:
- A Franchise Agreement (the core legal document)
- An Operations Manual (documenting the system the franchisee must follow)
- A Disclosure Document (compliant with the Code)
- Potential ancillary agreements (lease, supply, IP licence)
The Franchise Agreement should be prepared by a lawyer experienced in franchise law. The ACCC actively monitors franchise agreements for Code compliance.
Registered Trade Marks
The franchisor must own — not merely use — the trade marks being licensed to franchisees. A business contemplating franchising that has not yet registered its trade marks should do so before launching the network.
For Franchisees: Key Considerations
Due Diligence Before Signing
Before committing to a franchise, franchisees are strongly encouraged to:
Read the Disclosure Document carefully. Pay particular attention to the financial performance representations (or their absence), the territory provisions, the grounds for termination, and the end-of-term arrangements.
Speak to existing and former franchisees. The Code requires the Disclosure Document to include contact details of current franchisees and franchisees who have left the network in the past three years. These conversations often reveal information about the franchisor that is not in the formal documents.
Get independent legal and financial advice. The Code requires the franchisor to tell you to get independent legal advice before signing. Take that seriously. A franchise is a major financial commitment and the agreement is typically prepared entirely by the franchisor.
Understand the territory. Does the agreement grant an exclusive territory? Can the franchisor open a competing outlet (or compete online) within your area? Territory protection is one of the most common sources of franchisee disputes.
Understand exit rights. What are the conditions for transferring the franchise? What approval does the franchisor need to give? Can you sell the business you have built?
Common Franchisee Pitfalls
Overestimating earnings. Franchise systems vary enormously in the financial return they deliver. Historical or projected earnings provided by the franchisor should be independently verified, and the assumptions should be tested.
Underestimating costs. Franchise agreements typically include ongoing royalties, marketing fund contributions, technology fees, and other payments on top of the initial franchise fee. Modelling the total cost of operation — not just the upfront fee — is essential.
Assuming you can exit. Many franchise agreements restrict the franchisee’s ability to sell or transfer the business. Understanding exit rights before signing is a basic due diligence step.
Dispute Resolution
The Franchising Code contains a mandatory dispute resolution process. Before commencing legal proceedings, parties must attempt to resolve disputes through the Code’s process — including mediation facilitated by the Office of the Franchising Mediation Adviser (OFMA).
Mediation under the Code is confidential and relatively low-cost. Many franchise disputes are resolved through this process without going to court.
The ACCC also has powers to investigate and take action against franchisors who breach the Code — including seeking injunctions, corrective notices, and civil penalties.
The Bottom Line
Franchising offers a compelling model for business growth — but it operates within a highly regulated framework that imposes real obligations on both sides. For franchisors, getting the structure right from the start — the trade marks, the agreement, the Disclosure Document, and the unit economics — tends to determine whether the network succeeds. For franchisees, the diligence done before signing determines the quality of the investment.
Both sides benefit from specialist legal advice before committing. The Code is complex, the stakes are high, and the disputes that arise when things go wrong are consistently expensive.
This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances. For enquiries, contact Envision Legal.