Big changes are coming for franchisors in Australia
From 1 April 2025, a new Franchising Code of Conduct will take effect, bringing updates to franchise agreements, disclosure requirements, and compliance obligations. If you’re a franchisor, it’s time to get ready, some changes take effect immediately, while others roll out by 1 November 2025.
So, what do you need to know? Let’s break it down.
(Download a more detailed document here)
1. The New Code vs. The Current Code
The Current Code will still apply to franchise agreements signed before 1 April 2025, but once an agreement is renewed, transferred, or extended, the New Code will kick in.
One small but important update: what were previously called “clauses” are now called “sections”, so expect a few renumbering changes when reviewing your agreements.
2. New Termination Rules – What’s Changing?
Franchisors still have the right to terminate franchise agreements on 7 days’ notice, but the rules have changed:
Before: Franchisees could dispute all terminations under Clause 29 of the Current Code.
Now: Some terminations can’t be disputed, while others still can.
Franchisees CAN dispute termination if they are accused of:
- Abandoning the business
- Endangering public health or safety
- Operating fraudulently
Franchisees CANNOT dispute termination if the reason relates to:
- Breaches of the Migration Act 1958
- Breaches of Fair Work civil remedy provisions
- Other serious breaches listed under Section 57
What this means for franchisors: You need to be clear on termination rights and update your agreements to reflect these changes.
3. Cutting Through the Red Tape – What’s Gone?
Some administrative burdens have been removed, making compliance a little easier:
No more Key Facts Sheet – but we’re still waiting on Treasury to confirm whether it needs to be updated under the Current Code.
Cooling-off period opt-out – Franchisees who already own a franchise in the same network can waive their cooling-off period when buying another unit.
Disclosure Document opt-out – Franchisees don’t have to receive the Disclosure Document if they already own a business in the same network.
What this means for franchisors: These changes reduce paperwork, but you’ll need to clarify obligations with franchisees when signing new agreements.
4. Compensation Rules for Early Termination (Section 43)
If a franchisor terminates early for business reasons, they may now have to compensate franchisees.
This applies if a franchisor:
- Withdraws from the Australian market
- Restructures its franchise network
- Changes its distribution model in a way that negatively impacts franchisees
Before: Compensation only applied to new car dealership agreements.
Now: It applies to all franchise agreements.
Compensation must include:
- Lost profit from direct and indirect revenue
- Unamortised capital expenditure requested by the franchisor
- Loss of opportunity in selling established goodwill
- Cost of winding up the franchised business
What this means for franchisors: You must amend your franchise agreement to include a clause compensating franchisees. If you plan to exit a franchise network or change your business model, be aware that financial compensation may be payable.
5. Franchisors must give franchisees a fair shot at ROI (Section 44)
The New Code requires that franchise agreements allow franchisees a reasonable opportunity to make a return on their investment (ROI).
Does this mean franchisors must guarantee profitability? No.
But it does mean that agreements must be structured fairly.
Factors considered include:
- The length of the franchise agreement
- The costs involved
- The terms and restrictions imposed by the franchisor
What this means for franchisors: If your franchise model requires high upfront investment but restricts earnings potential, it could be scrutinised under the new rules.
6. Marketing & other funds are now ‘specific purpose funds’ (Sections 31 and 61)
If you collect money from franchisees for things like marketing, training, or operational costs, you now have more reporting obligations.
Before: These were called “marketing” or “cooperative” funds.
Now: They’re called “specific purpose funds”, and franchisors must disclose exactly how funds are used.
By 1 November 2025, franchisors must:
- Provide clear financial statements for all funds
- Keep separate bank accounts for these funds
- Ensure franchisees understand where their money is going
What this means for franchisors: Greater transparency is required, you can no longer use broad descriptions for how collected funds are spent.
7. Big changes for capital expenditure (Section 20)
Franchisors must now clearly disclose if franchisees will be required to make major investments during the agreement.
This includes:
- Store renovations & refurbishments
- Technology or equipment upgrades
- Any large financial outlay required by the franchisor
What this means for franchisors: If your model relies on frequent upgrades, this must be disclosed upfront to avoid legal issues.
8. Stricter rules on restraint of trade (Section 42)
Franchisors can no longer enforce a restraint of trade clause if:
- The franchisee had a renewal option but the franchisor refused renewal
- The franchisee met all renewal conditions and wasn’t in breach
- The franchisee wasn’t compensated for goodwill
What this means for franchisors: If you deny renewal, you may need to compensate franchisees, or they could walk away free to compete against you.
What should franchisors do now?
Don’t wait, start preparing now!
- Review and update franchise agreements
- Ensure compliance with new termination & compensation rules
- Prepare new disclosure documents in the new format
- Train your team on the changes
- Seek legal advice to avoid compliance headaches
Need help? Contact our Franchising team today
Phone: +61 3 8540 0200
Email:
Raynia Theodore – raynia.theodore@mst.com.au
Louise Wolf – louise.wolf@mst.com.au
Esther Gutnick – esther.gutnick@mst.com.au
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