Buying a franchise in Australia is a major financial commitment, and the Franchising Code of Conduct exists to protect prospective franchisees from unfair dealing. But the Code sets minimum standards, not maximum protections — and many franchise agreements still contain terms that heavily favour the franchisor. The failure rate of franchise businesses, combined with the financial ruin that can follow, makes careful contract review essential. The Code was substantially updated following the Fairness in Franchising report (2019), but enforcement remains inconsistent and many franchisees still enter agreements without fully understanding what they're committing to.
What is a Franchising Code of Conduct?
A franchise agreement is a contract that grants you the right to operate a business under someone else's brand, system, and trademarks. In Australia, franchising is regulated by the Franchising Code of Conduct, a mandatory industry code under the Competition and Consumer Act 2010 (Cth). The Code requires franchisors to provide a disclosure document at least 14 days before signing, give prospective franchisees a current copy of the Code, and include specific provisions in the franchise agreement such as cooling-off rights and dispute resolution procedures.
Red flags to watch for
The Franchising Code requires a minimum 14-day disclosure period. If the franchisor is pressuring you to sign sooner, they're breaching the Code and likely hiding problems.
Without exclusive territory rights, the franchisor can open competing outlets nearby, cannibalising your customer base. This is one of the most common sources of franchisee loss.
Franchisees typically contribute to a marketing fund, but if the agreement doesn't give you the right to see how those funds are spent, the money may not benefit your location.
If the franchisor can unilaterally require expensive refits, menu changes, or technology upgrades without a cap or consultation, your costs can escalate dramatically.
Post-term non-compete clauses that prevent you from operating a similar business for years after the franchise ends can leave you unable to use your industry experience.
The Code requires franchisors to act in good faith, but agreements without clear dispute resolution mechanisms make it expensive and difficult to enforce this obligation.
Your legal rights
Under the Franchising Code of Conduct (Competition and Consumer (Industry Codes—Franchising) Regulation 2014), you have the right to a 14-day disclosure period and a 7-day cooling-off period after signing. The franchisor must provide audited financial statements for the marketing fund annually. The Code requires good faith dealing from both parties (clause 6). You have the right to participate in mediation through the Office of the Franchising Mediation Adviser before resorting to litigation. The Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010) also protects you against misleading or deceptive conduct, unconscionable conduct, and unfair contract terms.
Questions to ask before you sign
- 1Can I see the financial performance of existing franchisees in similar locations?
- 2Is my territory exclusive, and can the franchisor sell online in my area?
- 3How is the marketing fund spent and can I audit it?
- 4What capital expenditure might be required during the franchise term?
- 5What are the total ongoing fees (royalties, marketing, technology, other)?
- 6How many franchisees have exited the system in the last three years and why?
- 7What happens to my investment if the agreement is not renewed?
Disclaimer: This guide is for educational purposes only and does not constitute legal advice. Contract law varies by jurisdiction and individual circumstances. Always consult a qualified legal professional before making decisions based on this information.