Australia: Franchising & the law - important changes

Last Updated: 13 March 2017
Article by Chris Verebes and Cherry Tan

Are the days when you had no bargaining power with the franchisor a thing of the past?

The Australian Government has long recognised the importance of the franchise industry to the small business community in Australia. To further promote growth in the franchise sector, reduce red tape, and encourage best practice principles, a new Franchising Code of Conduct (Code) came into effect on 1 January 2015.

Additionally, the new Unfair Contract Terms regime (UCT regime) under the Australian Consumer Law (ACL) came into effect on 12 November 2016. Under the UCT regime, the bargaining power between you and the franchisor has been equalised.

When buying a franchise, it would be wise for you to understand your rights so that you can make an informed decision before signing the franchise agreement.

How does the code help you?

The Code provides that a franchising agreement cannot be entered into unless the franchisor provides a potential franchisee with:

  • A short information statement highlighting the risks and rewards of franchising;
  • A copy of the Code;
  • A copy of the disclosure document; and
  • A copy of the franchise agreement.

These must be provided at least 14 days prior to entering into the franchise agreement.

If you intend to lease premises through the franchisor, the franchisor is also required to provide you with a copy of any lease, sub-lease or licence and details of any lease incentives or financial benefit that the franchisor is entitled to receive from the landlord.

How do these documents help you?

These 14 days are crucial for you to conduct your legal due diligence and the franchisor cannot rush you into entering into a franchise agreement. As soon as you get the documents, you should carefully read them, as they contain valuable information that you wouldn't otherwise know. This will help you to decide whether to take up the franchise or not.

Amongst other things, the disclosure document sets out whether there is any ongoing legal proceeding against the franchisor, whether the franchisor has gone bankrupt before, the expected set up and operational costs of the business, the number of franchisees and their contact details, the number of franchise businesses that have been terminated or discontinued either by the franchisor or franchisee(s), and the financial reports of the franchisor.

All this information can assist you in making a decision on whether the franchise business is a viable one, and if you might potentially encounter problems with the franchisor in the future. You may even contact other franchisees to get a sense of the franchise and whether they have any disputes with the franchisor.

At the same time, it is highly recommended for you to seek appropriate independent legal and financial advice.

Can I terminate the agreement?

If you do not wish to buy the franchise after conducting due diligence, the Code gives you a cooling off right where you are able to terminate either an agreement to enter into a franchise agreement, or the franchise agreement if it has already been entered into, within seven days of entering into such agreement or making any payment under the agreement (whichever is earlier). This cooling off period only applies to a new agreement, and does not apply to a transfer, renewal or extension of an existing franchise agreement.

If you decide to terminate the agreement during the cooling off period, any payments that you have made to the franchisor under the agreement (minus franchisor's reasonable expenses) would need to be returned to you within 14 days.

What other protections do I have under the Code?

In addition to the above, the Code also provides you with the following general protections:

  • Obligation to act in good faith: both parties to a franchise agreement have to act in good faith in respect of all matters relating to the Code and franchise agreement;
  • Transfer: should you wish to sell the franchise business in the future, you may need to obtain consent from the franchisor for the transfer of the franchise agreement. However, under the Code, such consent cannot be unreasonably withheld by the franchisor;
  • Termination: the franchisor must give you notice in the event of an alleged breach, except in certain special circumstances (e.g. if you acted fraudulently or become bankrupt), where the franchisor may be able to terminate the agreement with immediate effect; and
  • Dispute resolution: the Code provides a dispute resolution procedure through mediation.

The UCT regime

The Code is franchisee friendly and with the new UCT regime you might be getting additional protection, as the UCT regime has been extended to protect small businesses.

How does the UCT regime help you?

From 12 November 2016, the ACL has been extended to protect small businesses from unfair terms in a standard form contract. It is important for you to understand how the UCT regime applies and your rights under the UCT regime as many franchise agreements would be caught.

How does the UCT regime apply?

The UCT regime will apply to franchise agreements entered into or renewed on or after 12 November 2016, if the franchise agreement:

  • Is a standard form contract;
  • Is a small business contract; and
  • Includes a term in the franchise agreement which is unfair.

What is a standard form contract?

A standard form contract is typically one where the party who did not prepare the agreement (franchisee/you) is unable to genuinely negotiate the terms of the contract with the other party (franchisor) and has to enter the agreement on a 'take it or leave it' basis.

Some might argue that the parties usually do negotiate the terms of the agreement during the pre-contractual phase. However in practice, a franchisor would generally have a standard form franchise agreement that it offers to all of its franchisees and would not negotiate the terms with each of its franchisees beyond some of the basic terms like fees and territory.

What is a small business contract?

A franchise agreement will be a 'small business contract' if:

  • At the time of entering into the contract, either you or the franchisor has less than 20 employees; and
  • The amount payable (called the upfront price in the UCT regime) is less than $300,000 (or $1,000,000 if the contract is longer than 12 months).

Very often, franchisees have less than 20 employees at the time of entering into a franchise agreement and most franchise agreements are signed for a term of five or ten years with an amount payable of less than $1,000,000. As such, with no genuine opportunity to negotiate the terms of the franchise agreement, many franchise agreements would fall under the UCT regime.

What does unfair mean?

A term in your franchise agreement will be unfair if it:

  • Causes a significant imbalance in the parties' rights and obligations;
  • Is not reasonably necessary to protect the franchisor's legitimate interests; and
  • Will cause detriment to you (whether financial or otherwise) if relied on.

What clauses should I look out for?

Over the past 12 months (ending 11 November 2016), the Australian Competition and Consumer Commission (ACCC) who is the enforcer of the UCT regime, has worked with businesses in the franchising industry to identify the common terms that are likely to be considered unfair.

The ACCC found that potential unfair terms in a franchise agreement include:

  • Operations manuals: a franchise agreement usually gives franchisors unilateral right to vary operations manuals without consulting with the franchisees. In practice, although operations manuals are separate to the franchise agreement, they often set out franchisees' obligations and the franchise agreement usually provides that non-compliance with the operations manual will result in a breach under the terms of the franchise agreement, which gives the franchisor the right to terminate the agreement. The ACCC considers that a franchisor having such broad and unrestrained power to unilaterally amend operations manuals would most likely be considered to be unfair;
  • Liquidated damages: a fixed sum payment of liquidated damages to the franchisor in the event of a breach by the franchisee, for example a penalty of $1,000 for failure to attend a training session, appears to simply penalise a franchisee and may be deemed unfair;
  • Restraint of trade: terms that contain unreasonable cascading values for the restraint period and restraint area may raise some concerns; and
  • Termination: terms that grant the franchisor an unreasonable power to terminate a franchise agreement are likely to be found to be unfair. For example, the ACCC considers a termination clause would most likely be unfair if a franchisor could terminate a franchise agreement without considering the seriousness of the breaches or whether the franchisee has tried to remedy the breach.

What can I do if I think that a term is unfair?

  • Before you sign the franchise agreement: you can ask the franchisor to remove or amend the term so it is no longer unfair.
  • After you have signed the franchise agreement: if a dispute arises, a court or tribunal may determine whether a term of a contract is unfair.

In both instances, you should obtain advice from a lawyer.

What happens if a term is declared unfair?

If a court makes a declaration that the term is unfair, the unfair term will be deemed void which means that the unfair term does not bind the parties and will be unenforceable. The rest of the franchise agreement would however continue to bind the parties if it is capable of operating without that unfair term.


As this UCT regime is still in its infancy, it is yet to be seen how effective this regime will be in benefiting franchisees. In the meantime, we recommend that you seek legal advice from lawyers with experience in franchising law with the review and negotiation of your franchise agreement.

Madgwicks' Franchising Team has experience across a variety of franchise industries representing both franchisors and franchisees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Madgwicks is a member of Meritas, one of the world's largest law firm alliances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Australia
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright Australia
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions