It is important to learn about what franchise compliance is under the new franchising code of conduct for any new franchise business that wishes to enter the Australian market. So with some far-reaching reforms planned to come into effect on 1 April 2025, this article looks at what a franchisee must do in order to build a franchise business and make sure it works. No matter if you’re about to sign your first franchise agreement or if you’re already an experienced franchisee, this is your go-to guide for ensuring you stay on the right side of the law, protect your brand and maintain trust with your franchisees.
Franchisor Duties Under the New Code
The new franchising code of conduct, which will apply from 1 April 2025, imposes straightforward requirements on all franchisors that carry on business in Australia. These obligations are not just matters of simple fairness; they come with penalties enforceable in court and powers under ACCC (Australian Competition and Consumer Commission) oversight.
Under the code, the franchisor must act in good faith, supply documents when required, and support fair, transparent franchise transactions. This would include keeping the franchise business agreement in line with disclosure requirements and giving potential franchisees a fair chance to know what they are getting into.
The code also requires franchisors to keep proper records and participate in ADR (alternative dispute resolution) should fights break out. Any failure to comply with these standards can result in fines or public scrutiny. Franchisors who fail or refuse to participate in dispute resolution in a meaningful way, or who provide false documents, may also be subject to investigation or action.
Understanding the Disclosure Document
A disclosure document serves as the bedrock of franchise compliance. It has to be provided within the disclosure period, which at a minimum is 14 days before a potential franchisee can sign a franchise agreement. The disclosure statement must be current and include all information required in Schedule 1 of the new code.
The new requirements also demand more transparency around capital expenditure, special purpose funds and whether the franchisee has a reasonable chance of a return. In cases where a franchisor fails to provide accurate financial projections or fails to disclose marketing and cooperative funds, they may be liable for misleading conduct under competition and consumer law.
Importantly, the disclosure document must also provide a clear key facts sheet, which outlines the term of the franchise agreement, any restraint of trade clauses, and the estimated investment required by the franchisor. These updates are designed to give franchisees a better understanding of their risks and obligations.
Reach out to us if you need help understanding a franchise disclosure document. We’re always happy to assist.
Franchise Agreement Requirements
Of course, the franchise agreement must comply with certain minimum norms under the new code. It should have clauses on termination rights, dispute resolution mechanisms, capital infusion, and the renewal process. The length of the contract needs to be spelt out, as well as any provisions for renewal or terminating the contract.
One of the notable revisions in the new franchise code of conduct is that a franchisee must not enter a franchise agreement or make a payment under the franchise agreement unless 14 days have lapsed from all of the information being provided to the franchisee. This provides potential franchisees with time to go off and get independent advice before they sign.
Additionally, if the franchise business agreement is terminated, it must outline what happens to the franchisee’s business, whether claimed compensation for goodwill is due, and what restraint of trade conditions apply. Agreements that fail to include this may be unenforceable or subject to dispute.
Key Facts Sheet and Consideration Period Obligations
The Key Facts Sheet is now a standard requirement and must be provided with the disclosure document. It’s a condensed version of some of the most important points, such as the term of the franchise agreement, the legal costs involved, and whether any specific business requirement or competing business restriction applies.
This move is meant to help provide better transparency for potential franchisees, particularly for those signing their first franchise agreement. The key facts sheet is also required to disclose what, if any, cooperative funds are used and how they are to be used, and whether or not the franchisee has a reasonable likelihood of achieving a return.
Also, with the 14-day consideration period, franchisors cannot enter into a franchise agreement or receive any payment towards legal costs until the franchisee has had 14 days to consider all documents. This rule is strictly enforced and is intended to protect small operators from rushed decisions.
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Marketing and Cooperative Funds
Franchisees and marketing and cooperative funds have always been a problematic area for the system. The new code finally set out that all specific-purpose funds received by the franchisor should be disclosed at least annually and that the reports should be available to all franchisees.
Franchisors need to indicate the amount of money they collected, how they spent it, and if the funds put to a common purpose benefited the network as a whole. Failure to comply with these requirements may have civil consequences, particularly if the franchisor misappropriates or fails to account for the funds.
It has also instituted stringent rules around transparency so that franchisees receive an adequate shot at getting a return on investment from marketing expenditure. This is especially relevant in industries where the cost of advertising is a significant portion of the total capital investment for franchisees.
Restraint of Trade and Termination Clauses
Reasonable and clear restraints of trade are now a requirement under the new franchising code of conduct. The restraint may be regarded as unenforceable if the franchisee was not in material breach of its obligations at the time of termination of the franchise agreement.
These provisions are designed to protect the franchisee from unfair competition when it ceases to do business with the franchisor. The Code also stops franchisors from having franchisees sign clippings of trade restraint clauses that could be used to prevent them from starting a similar business if they have acted in good faith and met their obligations.
Furthermore, in the event of termination of a franchise agreement with the franchisor, the new code will oblige the franchisors to disclose the withdrawal conditions that will come into effect after the termination. This includes all claims for compensation, lost profit on the sale of the business, and, in particular, reference to the lost profit occasioned by the action of the franchisor.
Legal Costs and Capital Expenditure Disclosures
The code requires full disclosure of all legal costs and anticipated capital expenditure. These must be outlined in both the disclosure document and the franchise agreement. If the franchisor’s legal costs are to be paid by the franchisee, this must be specified and justified.
This requirement is particularly relevant for small business and family enterprise owners, who often enter franchising arrangements with limited financial resources. Transparency around costs is crucial to ensuring a reasonable opportunity to make a return on the investment required by the franchisor.
Franchisors must also be clear about any capital investment needed to upgrade or refurbish the business. These obligations cannot be vague; the code clarifies that franchisors to provide a clear cost breakdown and explain whether the capital expenditure serves a common purpose.
Compliance, Penalties and Dispute Resolution
Franchisors who fail to comply with the new code may be subject to penalty notices, civil penalties, or even have their names published as part of the ACCC’s enforcement regime. The business and family enterprise ombudsman and Australian small business and family organisations may also conduct an independent review of the franchising behaviour in serious cases.
The code introduces enhancements to the ADR process, ensuring that all parties in a dispute engage meaningfully before escalating matters. The alternative dispute resolution process is more structured under the new code, offering franchisees and franchisors a more effective mechanism for resolving issues early.
Additionally, franchisors who engage in misleading conduct, refuse to cooperate with mediation, or impose unfair terms may face investigation. A review of the franchising code is scheduled after these updates to determine effectiveness and further protections for existing franchise networks and new entrants.
Final Thoughts: What Franchisors Need to Remember
The new franchising code of conduct is a significant shift in how franchisors must operate in Australia. It brings a higher standard of accountability, transparency, and fairness—especially for small business operators entering into a new franchise.
To remain compliant:
- Ensure the disclosure document and key facts sheet are accurate and provided on time.
- Avoid signing agreements until the consideration period has passed.
- Be transparent with marketing and cooperative funds.
- Clarify all legal costs, capital expenditures, and restraint of trade clauses.
- Participate in the dispute resolution process in good faith.
As a franchisor, your obligations are more than legal checkboxes—they’re the foundation of a healthy, trustworthy, and sustainable franchise relationship.
Need help staying compliant with the new code?
The Australian Franchisee Alliance (AFA) supports franchisors and franchisees in understanding their rights and obligations. If you’re preparing to launch a new franchise or want to review your current practices under the new franchising code of conduct, get in touch with the AFA today. We’ll help ensure your franchise business is built on trust, transparency, and long-term success.
FAQS
To ensure franchisees understand their legal obligations, a franchisor must provide franchisees with a disclosure document, a key facts sheet, and a copy of the franchise agreement during the disclosure period. These documents must outline the risks of running a business, any certain obligations imposed by the franchisor, and the term of a franchise agreement. These requirements of the new code help franchisees make informed decisions before entering or renewing an agreement.
If a franchisor must enter into another franchise agreement with an existing franchisee, they are still required to meet the requirements of the new code. This includes issuing a new disclosure document, providing a key facts sheet, and observing any cooling-off period that may apply to the new contract. Even when renewing or extending agreements on or after 1 April 2025, the franchisor must treat it as a new transaction unless otherwise specified in the franchise agreement.
Yes, the requirements of the new code are designed to ensure a reasonable opportunity for return on investment. A franchisor must clearly disclose all upfront and ongoing costs, including capital expenditure, so the franchisee can assess the likely return on investment. If a franchisee renews or enters into an agreement with the same franchisor, this obligation remains. The Code also allows regulators to publicise the names of franchisors who fail to provide accurate or sufficient information, increasing accountability.
A franchisor must not sign a franchise agreement until all disclosure requirements are met and the cooling-off period has been observed. This includes ensuring the franchisee has received the key facts sheet, disclosure document, and franchise agreement at least 14 days’ notice before signing. These industry codes are designed to give franchisees enough time to understand the legal obligations and risks of running a business before making a final decision.
If a franchisee believes they haven’t had a reasonable opportunity for return, the new version of the code gives them access to dispute resolution mechanisms. The franchisor may be required to participate in mediation or conciliation. If it’s found that the franchisor misrepresented the business or breached certain obligations, the regulator may publicise the names of franchisors who have not complied with the requirements of the new code. This ensures that the business remains accountable and transparent for all agreements entered into.
