The franchisee manual A guide for business
- Introduction
Just like any business, there are risks to running a franchise. If you buy a franchised business and it is
not viable, you could lose all your money and any assets – such as your house – that you have borrowed
against. Also, as a franchisee, your franchise agreement is likely to limit the decisions that you can make
about your business. If you are thinking about buying a franchise, you need to understand the risks
before making a final decision or signing a franchise agreement.
The Franchising Code of Conduct applies to the parties to a franchise agreement. The Code is a
mandatory industry code and has the force of law, meaning that franchising participants must comply
with what it says. It sets out some rights and obligations for parties in franchising, including that
franchisors must disclose specific information to potential and existing franchisees, and it sets out some
minimum standards of conduct.
It is important to know that the Code will not protect you from making a bad deal. It does not guarantee
that your business will be successful or that you will be able to recover losses.
Be aware that franchisors don’t necessarily need their franchisees to be successful. They can make a
profit from selling a failed franchise to someone else. When you buy a franchise, the financial risk falls
largely on you. So, if you are interested in buying a franchise, seek out a franchisor who is genuinely
interested in helping their franchisees succeed. They should show you that they run their franchise
system in a way that benefits their franchisees, and not just themselves. For example, you would expect
their franchise agreement to include rights for franchisees that are well above the minimum standards
required by the Code.
This manual will help you to understand:
what franchising is
steps you should take before choosing a franchise
how to research and verify information given to you about a franchise opportunity
your rights and responsibilities under a franchise agreement
what to do if you have a dispute with your franchisor.
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The information in this manual applies to franchise agreements entered into, renewed or extended from
1 July 2021 and disclosure documents provided from 1 November 2021. If you have an older agreement
or disclosure document, the information in this guide may not apply in some instances. This guide does
not include any guidance for new vehicle dealerships.
The ACCC encourages franchisors, franchisees and potential franchisees to use this guide. However this
guide is not legal advice. Readers should seek their own legal advice where appropriate.
Key terms
Franchisee – a person (or company) who invests in a business that is part of a system or marketing
plan largely controlled or decided on by someone else (the franchisor).
Prospective franchisee – a person (or company) who is thinking about buying a franchise. They
may have approached a franchisor, and received some key documents to consider, but have not yet
signed an agreement or paid a non-refundable payment to the franchisor.
Franchisor – a person (or company) who sells the franchised business and makes the key decisions
for all businesses in the franchise system.
Associate (of the franchisor) – someone whose relationship with the franchisor is related to the
franchise system. This might be, for example, because they are a supplier to a franchisee, they
allow a franchisee to lease or occupy premises, they own intellectual property used in the franchise
system or they are involved in marketing activities for the franchise system. An associate can be a
director, a company related to the franchisor, a director of a company related to the franchisor, or
a partner of the franchisor. If the franchisor is a company, an associate could also be someone who
owns, controls or has a certain amount of voting power in the company.
Master franchisee – a person (or company) to whom a master franchisor (the ‘head’ franchisor)
grants a master franchise. A master franchisee is normally allowed to grant and participate in a
sub-franchise. This means, for example, they may act as the franchisor in a particular state or
territory.
Your rights under the Australian Consumer Law
Remember that, in addition to the Franchising Code, you also have rights and obligations under the
Australian Consumer Law. For example, businesses are not allowed to engage in conduct that misleads
or deceives or is likely to mislead or deceive consumers or other businesses. It is also unlawful for a
business to make false or misleading claims about goods or services.
Read more about misleading and deceptive conduct and other business rights and protections on our
website, or in our Small business & the Competition and Consumer Act guide.
3 The franchisee manual - Start-up checklist
Here are some of the key steps you should take before committing to a franchise opportunity. - Consider whether franchising is right for you. You need to be aware of the specific
risks and challenges of being a franchisee. - Complete this short online course about franchising, developed specifically for
people who are thinking about buying a franchise. It’s in easy to understand
language, with case studies, myth busting, and explains some of the realities of
franchising.
- Assess your skills, strengths and weaknesses. For example, do you have prior
experience in owning and running a small business? If not, you could benefit by
working alongside a franchisee to gain experience before you commit to buying a
franchise.
- Make sure you receive an information statement. This is the very first document
you should receive from a franchisor when you express an interest in their
franchise.
- If after you read the information statement you are still interested, make sure you
receive a disclosure document, franchise agreement, key facts sheet, and a copy
of the Code. You may also be given earnings information and, where relevant,
leasing information.
- Read these documents carefully – then ask questions, and make sure that you get
the answers and any further clarification in writing. - If you will occupy premises as part of your franchise, make sure you understand
your rights and obligations under the lease or occupancy agreement, and that you
have received all of the related documentation that you are entitled to. Our online
franchising course has a specific section on leases.
- Check clauses on termination, renewal, end of term and transfer of the franchise,
and make sure you are willing to accept them. You can learn more about the end
of a franchise agreement in the online course. - Take detailed notes of your meetings with the franchisor, including during
discussions about capital expenditure. Insist on the franchisor confirming any
claims they make in writing, especially for any claims about earnings and profits. If
it is something that’s important to you, include it in the agreement.
- Research the franchise and try to independently verify the information provided to
you. This includes speaking to current and previous franchisees – you will find their
contact details in your disclosure document.
- Get professional advice from an independent accountant, lawyer and business
expert. Ask them to look over all of the documents that you have received from
the franchisor, and any other information that you have in writing. They can help
you spot red flags and assess the viability of the business.
- If the deal is not acceptable, try to negotiate a better offer, look for a better deal,
or reconsider if franchising is right for you.
4 The franchisee manual - Before choosing a franchise
Franchising may seem like a popular way to operate a business. However, purchasing a franchise is not
a guarantee of success.
Before choosing a franchise you should:
carefully research the business you are buying, and the wider franchise system
understand what it means to be a franchisee, compared to a small business owner - know what rights you have – and don’t have – under your agreement
- know exactly what you can expect from your franchisor
- be aware of your obligations and know the consequences if you can’t meet them
- understand the risks associated with franchising.
Educate yourself
Franchising is different to other business models in ways that aren’t always obvious. Completing some
franchising education (before you buy) helps you understand how it is different and whether franchising
is right for you.
Our free online course about franchising helps anyone thinking about buying a franchise to understand
the realities of franchising. Find it on our website: www.accc.gov.au/franchising-education-program.
Check whether the Code applies
Generally, if an agreement meets the definition of a franchise agreement in the Code, it will be covered
by the Code – even if the agreement or business opportunity isn’t described to you as a ‘franchise’.
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A ‘franchise agreement’ exists if: - there is an agreement between the parties, which may or may not be in writing
- one party (the franchisor) gives another party (the franchisee) the right to carry on a business
under a system or marketing plan that the franchisor or an associate of the franchisor substantially
decides, suggests or controls - the business is substantially or materially associated with a specified trademark, marketing or
commercial symbol - before starting the business the franchisee must pay, or agree to pay, an amount to the franchisor
or its associate.
Be aware of your rights and responsibilities under the Code
Disclosure – the documents provided by the franchisor that you must read
before you sign
A franchisor must provide certain documents to you upfront, before you commit to joining the franchise
system. These documents can help you make an informed decision about whether that franchise
system is right for you, so it is vital that you read and understand them.
If… You must receive from the franchisor… It should be given to
you…
…you are interested in
buying a new or existing
franchised business
(excludes if you are
considering renewing
or extending an existing
agreement). - an information statement
The information statement is a 4-page
document that highlights some of the risks
and rewards of franchising.
…as soon as you express
an interest.
This is the first document
you should receive.
NB after you have received and read the information statement, if you are still interested in buying
the franchise the franchisor (or, where relevant, their associate) must give you documents 2–5
listed below.
Depending on your situation, you may also receive some or all of the additional documents listed 6–11.
…you are interested in
buying new or existing
franchised business
(includes renewals and
extensions of existing
franchise agreements,
and also transfers if you
will be entering into a
new agreement rather
than taking up the seller’s
existing agreement). - a disclosure document
- a key facts sheet
- a copy of the franchise agreement
- a copy of the Code.
…at least 14 days before
you sign a franchise
agreement or make a
non-refundable payment
(whichever happens
first).
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…you will be leasing or
occupying a premises
from the franchisor or its
associate. - a copy of the lease (or, if they don’t
have the lease, a summary of the
commercial terms of the lease) - written information given under a State
or Territory law or, if the lessor didn’t
give that information, any information
of that kind that the franchisor or
associate is aware of.
…at least 14 days before
you sign a franchise
agreement or make a
non-refundable payment
(whichever happens
first).
…a franchisee proposes
to sell you their franchise
by transferring their
existing franchise
agreement to you,
and the seller asks
the franchisor to give
consent to the transfer. - a copy of the existing
franchise agreement - any other document the franchisor
requires you to sign to make the
transfer - documents listed in items 2, 3, 5 and if
applicable, 6 and 7 above.
…at least 14 days before
the franchisor consents
to the transfer of the
franchise agreement.
…the franchisor is giving
you information about
earnings e.g. projected
or forecast earnings, or
historical information
about earnings of the
franchised business. - the earnings information. …earnings information
must be given with or
before any of the other
pre-franchise
documents.
From 1 November 2021,
you must receive any
earnings information
either in the disclosure
document or in a
separate document
attached to the
disclosure document.
…the franchisor requires
you to enter into other
agreements as a
condition of a franchise
agreement, for example
a hire purchase, security
or confidentiality
agreement, or a restraint
of trade agreement. - all of the other relevant agreements
that you have been asked to enter into
(not including the agreements referred
to above).
…at least 14 days
before you sign the
franchise agreement. If
the documents are not
available at that time,
they must be provided
as soon as they become
available.
Good faith
A franchisor is required to act in good faith in its business dealings with you. You must also act in good
faith when dealing with a franchisor.
A party can show good faith by acting:
reasonably when exercising their rights under the agreement
fairly
honestly
cooperatively to achieve the purposes of the agreement.
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There may be a lack of good faith if a party acts:
arbitrarily
for some irrelevant purpose
dishonestly
for an ulterior motive
in a way that undermines the franchise agreement
in a way that denies the other party the benefits of the franchise agreement.
This obligation means that a party should consider the rights of the other party, but it does not
mean that they have to act in the other party’s interests or that they can’t act in their own legitimate
commercial interests. For example, it means that a franchisor must be honest and cooperative when
negotiating a franchise agreement with you, but it is unlikely to mean that a franchisor must make any
changes that you request to your agreement. Similarly, if a franchisor decides not to offer you an option
to renew or extend your agreement, that does not necessarily mean that the franchisor has not acted in
good faith in negotiating the agreement.
Conduct that may raise concerns under the obligation of good faith include:
a franchisor treating a franchisee differently because the franchisee has raised concerns about the
system
a franchisor raising numerous minor and immaterial breaches with a franchisee in an aggressive and
intimidating manner designed to pressure franchisees to do or refrain from doing something
franchisees using confidential information provided by the franchisor to compete with the franchisor
franchisees using social media to post negative comments about their franchisor or their dispute
with their franchisor.
Practical tips
The franchisor is likely to be acting in good faith if they are:
being honest with you
considering your interests (but not necessarily acting in your interests)
consulting with you about proposed changes (even if you don’t end up agreeing to the changes)
trying to resolve disputes as they arise, whether informally or in a formal alternative dispute
resolution process
not exercising rights, powers or discretions for a purpose that undermines your agreement.
The obligation to act in good faith applies to any matter arising in relation to a franchise agreement or
the Code. This means that the obligation extends to all aspects of the franchising relationship, including
before (during pre-contractual negotiations), during and at the end of the agreement.
The obligation to act in good faith may even continue after the agreement comes to an end. For
example, if you have obligations under the agreement that will continue after the agreement comes to
an end, you may be required to perform these obligations in good faith.
8 The franchisee manual - Research and verification
Properly researching and investigating the franchise system is a key step for prospective franchisees.
Don’t make assumptions or accept claims about the business at face value. Remember, just because a
franchise is for sale, doesn’t mean it’s a profitable business.
You need to assess the short-term and long-term viability of the business that you are investing in, and
feel confident about taking on the potential risks. This is often referred to as ‘due diligence’.
Do your own research and due diligence
Due diligence is a comprehensive check and evaluation of the business you are thinking about buying. It
should be done for any purchase of a business, including a franchise business.
Because the franchisor or franchise system has such a big influence on the success or failure of
your individual franchise, you’ll have to do due diligence twice – on the franchised business and the
franchise system/franchisor as well.
If you are an existing franchisee, and the franchisor wants to sell you an additional franchised business
or territory, or offers to renew your agreement for another term, you also need to do due diligence.
Our online franchising course outlines the key aspects of due diligence.
Look out for scammers
Warning signs of a scam franchise opportunity include:
claims you can make large amounts of money quickly and with little effort – for example ‘get rich
quick schemes’
a reluctance to give you the contact details of the other franchisees or to put claims made to you in
writing
a requirement that payment be made upfront before any information is released
the provision of inconsistent financial information about the business’s profitability
incomplete or limited disclosure about the franchise system and/or the franchisor.
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The ACCC strongly recommends that you seriously reconsider pursuing a particular business
opportunity if you see any of these warning signs. If you decide to ignore them, it may later amount to a
bad or possibly reckless business decision that cannot be remedied.
Practical tip
For more information on scams, visit the ACCC’s SCAMwatch website, which provides information
about how to recognise, avoid and report scams. You can also register to receive free SCAMwatch
email alerts, and warnings about scams.
Read your pre-entry franchising documents
When you approach a franchisor about buying a franchise, they will give you documents containing
information about the franchise system, the business that you are buying and what it means to be a
franchisee (see ‘Disclosure – the documents that you must read’, above).
Read these documents carefully to:
understand your rights and obligations as a franchisee
assess the viability of the business
verify that the information that you have been given is true and accurate
identify anything that is unclear or that you’d like to know more about so that you can ask questions,
investigate further and get independent advice.
Getting independent advice– from someone outside the franchise system with franchising experience
– is important. Legal, accounting and business professionals can help you to identify and understand
critical information given in pre-entry documentation.
Review the disclosure document
You should read the disclosure document in conjunction with the key facts sheet, which highlights some
of the information that is in the disclosure document. If you want to understand what specific items in
your disclosure document mean, our ‘Quick guide to a franchise disclosure document’ is a good place
to start. You should also ask independent professional legal, business and accounting advisors to review
your disclosure document.
You may wish to pay particular attention to the following items in your disclosure document:
Litigation (item 4)
How many franchisees were party to an alternative dispute resolution (ADR) process or arbitration in
the previous financial year? This will be shown as a percentage.
Are there legal proceedings against the franchisor, a franchisor director, associate of the franchisor
or a director of an associate?
Franchise territory (item 9)
Is the franchise for an exclusive or non-exclusive territory?
Can the franchisor operate or establish a business that is substantially the same as the franchise in
your territory?
Can the franchisor change your territory?
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Purchasing ability of franchisees (item 10)
Is there a limit on the suppliers that you can buy goods or services from?
Will you be required to buy goods or services from a particular supplier or a list of nominated
suppliers (including the franchisor)?
Will the franchisor, master franchisor (or one of its associates) receive a rebate or other financial
benefit when you buy goods or services from a supplier? If so, what are these benefits and which
businesses are paying them? Consider the amount of a benefit paid by a supplier as a percentage
of total purchases made from that supplier. It’s important to understand what financial benefit the
franchisor, master franchisor (or associates) receive because of purchases you make from their
nominated suppliers.
Will any of those rebates or other financial benefits be shared with you? If so, how, what and how
much will you receive?
Online sales (item 12)
Will you be able to sell your goods or services online? If so, will the franchisor impose any conditions?
Can the franchisor, its associate, or other franchisees sell goods or services online? If so, to what
extent will those goods or services be supplied in your territory?
Site selection (item 13)
What is the franchisor’s policy for selecting a site and/or territory for your franchise?
Has the site selected for your franchise previously been operated by another franchisee or the
franchisor (or one of its associates)? If so, in what circumstances did they cease to operate?
Payments (item 14)
Are you required to make a payment before the franchise agreement is entered into, and under what
conditions will this payment be refunded?
Are you required to make an initial capital investment?
What are the start-up costs of the franchise?
Will you have an ongoing obligation to pay royalties, advertising or other fees?
What are your anticipated ongoing expenses (e.g. wages, supplies)?
Will you be required to upgrade equipment or the franchise premises?
Practical tips
The franchisor must discuss with you any capital expenditure that they have disclosed in the
disclosure document. This includes discussing the circumstances under which the franchisor
believes that you are likely to recover these costs. Make sure that you keep detailed notes of any
conversations and ensure that those discussions cover all of the capital expenditure disclosed in your
disclosure document.
If a franchisor does not disclose significant capital expenditure you are required to pay as a
franchisee, it can still require you to pay significant capital expenditure if you agree to it, a majority of
franchisees agree to it or where the expenditure is considered necessary to comply with the law.
Arbitration of disputes (item 17A)
How does the franchise agreement say disputes will be resolved? Does it say that you can resolve
disputes by arbitration?
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Early termination (item 17B)
What rights do you have under the franchise agreement to terminate early? In what circumstances
may you exercise those rights?
What rights does the franchisor have under the franchise agreement to terminate early? In what
circumstances may the franchisor exercise those rights?
End of term arrangements (item 18)
What happens when the agreement comes to an end?
Will you have an option to renew or extend the agreement, or enter into a new agreement?
If so, what process will the franchisor use to determine whether to renew, extend or grant a
new franchise?
What rights do you have in relation to any goodwill that you generate as a franchisee?
Verify earnings information
The franchisor may choose to provide you with earnings information. This could be historical figures or
a projection or forecast.
If the franchisor has provided you with projected earnings, it must also provide you with certain
information about the assumptions on which the projection is based. An independent accountant or
business adviser will be able to assist you to compare and verify any figures or projections given to you.
Earnings information must, to the best of the franchisor’s knowledge, be accurate (and the franchisor
must specify information that they know is not accurate).
Speak to franchisees
Speaking to both existing and former franchisees will give you an insight into how the franchise system
works and the relationship that the franchisor has with its franchisees.
Franchisors are required to provide you with the contact details of current franchisees as well as
franchisees who have left the system in the last 3 years, unless the former franchisee has requested in
writing that their details not be disclosed (see item 6 of the disclosure document provided to you).
You should try to speak to as many franchisees and former franchisees as you are able to. You should
consider asking them about:
whether they are satisfied with the level of support provided by the franchisor
their experience with training and supply of products or services
whether they would consider purchasing an additional outlet
their experience in resolving any disputes with the franchisor
if they have left the franchise system – why they left.
You should also take this opportunity to test any claims made by the franchisor. For example, if the
franchisor has made claims about earnings potential or the profitability of existing stores, you should
ask franchisees how these figures compare with their actual earnings.
If possible, it is also a good idea to work with an existing franchisee so that you are able to see how the
business operates first hand, including turnover and staffing requirements.
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Check the franchisor’s financial position
Franchising is a business and, like any business, the franchise (or franchisor) could fail during the
franchise term. This could have serious consequences for you.
The franchisor’s financial details will be a key source of information that will provide an insight into the
immediate status of the franchise system. Certain financial details have to be disclosed to franchisees
under item 21 of the disclosure document, including a statement of the franchisor’s solvency, which is
supported by either financial reports for the last 2 financial years or an independent audit.
This information will assist you to form an opinion about the viability of the franchise and the level of
investment risk that it poses. An accountant will be able to assist you with this.
If updated financial details under item 21 become available after the franchisor has provided you with a
copy of the disclosure document, those updated details must be provided to you as soon as possible.
The updated financial details must be provided to you before you enter into the franchise agreement.
Do a background check
It is a good idea to do some general internet searches on the franchise and the franchisor. This may help
you to identify further information that is relevant to your decision whether to purchase a franchise.
The Australian Securities and Investments Commission (ASIC) website www.asic.gov.au has a number
of useful resources that will assist you to perform a background check, including:
checking if the company and/or business name is registered in Australia
finding information on the company and the people that you are dealing with
signing up for company alerts in order to monitor the documents a company lodges.
Practical tip
Download ASIC’s ‘Business Checks’ phone app, which will help you to:
work out the right questions to ask about the company/business and the individuals you are
dealing with
check ASIC’s registers and verify the accuracy of the information given to you
seek ASIC’s help if you need more information or the assistance of a professional business
adviser
report suspected misconduct if you believe a company, business or individual is acting
unlawfully.
Legal action
A franchisor is required to disclose the details of certain court proceedings against the franchisor,
a franchisor director, an associate of the franchisor or a director of an associate of the franchisor
(see item 4 of the disclosure document). If legal action has been taken, you should obtain further
information about the matter and its outcome. You should also check whether any government agency
or private party has taken legal action against the franchisor or any other persons responsible for the
management of the franchise (including directors and majority shareholders) and/or the franchise itself.
You should consider doing searches on the ACCC website and the ASIC website.
A franchisor is also required to disclose the percentage of franchisees that were party to an ADR
process or arbitration in the previous financial year. This information will be in your disclosure document.
If there seems to be a high level of disputes in the system, you should make further inquiries including
with other franchisees.
13 The franchisee manual - Understanding your agreement
Your franchise agreement is the contract between you and your franchisor. Once you have signed the
agreement, you will be legally bound by its terms and conditions.
There are 4 key stages to your franchise agreement: - before you sign or make a non-refundable payment
- the cooling-off period
- during the agreement
- the end of the agreement.
You should make sure you are aware of your rights under your agreement and the Code within each of
these phases.
You should also seek professional advice on the agreement and the business opportunity more broadly.
Buying a franchise is a significant financial and personal commitment and you should make sure that
you know exactly what you are agreeing to.
Our online course has a specific lesson about what a typical franchise agreement contains.
Before you sign
Once you have received the franchise agreement, disclosure document, key facts sheet and a copy of
the Code (and leasing information and earnings information, if relevant), the franchisor must wait at
least 14 days before you:
enter into a franchise agreement (or an agreement to enter a franchise agreement) or
make a non-refundable payment.
The franchise agreement provided to you must be in its ‘final form’. However, the franchisor may
make changes to the agreement during the 14 day period to implement changes you requested,
fill in required particulars, reflect changes of address, make a minor clarification or correct errors
or references.
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Read your agreement
You should look closely at the terms of your agreement. Take longer than 14 days if you need to.
Particular things to look out for include whether:
the franchisor can terminate your franchise agreement even if you are not in breach of the
agreement
you will have a right to renew or extend your agreement or enter into a new agreement after the
initial term – understand if conditions are attached to this and what they will cost you
the term of your agreement coincides with any lease agreement
claims that have been previously made to you have been put in writing and form part of the
contract, including any earnings guarantees
the franchisor will place restrictions on the way you operate the business
quality and other standards for products and/or services will be imposed on you
the franchisor will seek to impose a restraint on your ability to operate a similar business to the
franchise after your agreement has come to an end.
Practical tip
When reading through your franchise agreement you may find it helpful to highlight your
obligations and the franchisor’s obligations in different colours.
Documents you must give to the franchisor
You will need to sign a written statement stating that you have received, read and had a reasonable
opportunity to understand the Code and the disclosure document. This statement must be provided to
the franchisor before you sign or pay any non-refundable money.
The franchisor also cannot enter into a franchise agreement with you until it has received:
written statements from an independent legal adviser, business adviser or accountant that they have
provided advice to you (or statements from you confirming that you have received this advice) or
a signed statement from you indicating that you were told that this advice should be sought but
decided not to do so.
The statement regarding professional advice is not required by the Code if you are proposing to renew
or extend a franchise agreement.
No release of liability
The franchisor must not require you to sign a document releasing the franchisor from liability
towards you.
In addition, a franchise agreement must not contain or require you to sign a waiver of any verbal or
written claims made by the franchisor.
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Cooling-off period
If you… You may terminate your
franchise agreement…
If you terminate your
agreement within the 14-day
cooling-off period…
…are entering into a new
franchise agreement.
…within 14 days after entering
into the agreement.
…you are entitled to a refund
for payments you’ve made
within 14 days. However,
the franchisor can deduct
reasonable expenses if set out
in the franchise agreement.
…are buying a franchise and
the seller is transferring their
existing agreement to you.
…within 14 days after becoming
the franchisee OR once you
take possession and control
of the franchised business
(whichever happens first).
…the previous franchisee is
reinstated as the franchisee, if
possible, and must refund you
any payments made under
the transfer agreement, less
any reasonable expenses.
The franchisor also has similar
obligations to refund payments
it received from you.
…are to lease or occupy the
business premises from the
franchisor or its associate, and
that lease or occupancy right is
not yet in force.
…within 14 days after receiving
the terms of the proposed lease
or right.
There is a further 14 day
cooling-off period that applies
if the final terms of the lease
or occupancy right are not
substantially identical to the
proposed terms.
…you are entitled to a refund
for payments you’ve made
within 14 days. However, the
franchisor can deduct its
reasonable expenses if set out
in the franchise agreement.
…are to lease or occupy the
business premises from the
franchisor or its associate and
that lease or occupancy right is
not yet in force.
…within 14 days after entering
into the lease or the occupancy
right if beforehand the
franchisor hadn’t given you a
document setting out terms
substantially identical to the
terms of your actual lease or
occupancy right.
…you are entitled to a refund
for payments you’ve made
within 14 days. However, the
franchisor can deduct its
reasonable expenses if set out
in the franchise agreement.
Please note: the Code does not provide cooling-off rights when renewing or extending an existing franchise agreement.
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During the agreement – your ongoing rights and obligations
Lease documentation
If you… The franchisor must give you…
…lease premises from your
franchisor or one of its
associates. - a copy of the lease (or the agreement to lease)
- information about any incentive or financial benefit the
franchisor or its associate would be entitled to receive as a
result of the lease.
The franchisor must give you the above information and
documents within one month after the lease (or agreement to
lease) is signed.
…occupy premises leased by
your franchisor or its associate. - a copy of the lease (or the agreement to lease)
- information about incentives that the franchisor or its
associate receives because you occupy the premises - information about any incentive the franchisor or its associate
receives because they lease the premises - the documents that give you the right to occupy the premises
- the conditions of occupation.
The franchisor must give you the documents that give you
the right to occupy the premises within one month after the
documents are signed. The other required documents must be
provided within one month of you commencing occupation of the
premises.
State and territory retail tenancy laws regulate retail leases. If you lease or occupy premises from your
franchisor or an associate, they must give you any written information that the lessor gave to them in
line with the law of the relevant state or territory (for example, if the premises is located in NSW, the
relevant NSW laws apply) or any information of that kind of which they are aware. You can request a
copy of this information at any time. The laws vary between the states and territories, so familiarise
yourself with your region’s laws.
Franchisors must also disclose in the disclosure document whether they or an associate have an interest
in a lease that will be used for the operation of the franchised business.
Practical tips
Check whether the term of your retail lease corresponds with the term of your franchise agreement.
For example, it may not be ideal to have a 5-year lease and a 3-year franchise agreement.
Freedom of association
The franchisor must not do anything that restricts your ability to associate with other franchisees or
prospective franchisees for a lawful purpose, or your freedom to form an association with them.
17 The franchisee manual
Requesting a disclosure document
You can request (in writing) a disclosure document once every 12 months.
Your franchisor will generally be required to provide you with the disclosure document within 14 days.
However, if the franchisor does not have an updated disclosure document as it was not required by
the Code to make the annual update at the end of the last financial year, it then has up to 2 months
to provide you with an updated disclosure document. They will also have to give you an updated key
facts sheet.
Disclosure of materially relevant facts
Your franchisor’s disclosure obligations do not end when you become a franchisee. The franchisor must
also disclose to you if a materially relevant fact occurs.
A ‘materially relevant fact’ is a key piece of information about the franchisor or the franchise system that
could have an effect on your franchised business. Materially relevant facts include:
changes in majority ownership or control of the franchisor, franchise system or an associate of the
franchisor
certain court proceedings or judgements against the franchisor or one of its directors
a change in the intellectual property, or ownership or control of the intellectual property, that is
material to the franchise system.
If any of these matters occur, the franchisor is required to tell you about it within 14 days.
Marketing funds
If you contribute money to a marketing or cooperative fund, the fund administrator (this could be a
franchisor or a master franchisor, or a third party authorised to administer the fund for the franchisor or
master franchisor) can only spend the marketing fund money on:
expenses that were set out in the disclosure document
legitimate marketing expenses or
expenses that have been agreed to by a majority of franchisees.
The fund administrator must prepare an annual financial statement of all the fund’s receipts and
expenses for the last financial year within 4 months of the end of its financial year. The statement must
provide meaningful information about who contributes to the fund and what the money is spent on.
The statement must be audited, unless 75% of franchisees who contribute to the fund vote that an audit
is not required. This decision must be revisited every year.
The fund administrator must provide you with the financial statement and auditor’s report (if required)
within 30 days after their preparation.
Jurisdiction for settling disputes
The franchisor cannot require you to conduct an Alternate Dispute Resolution (ADR) process,
arbitration, or bring proceedings outside the State or Territory where your franchised business
is located.
18 The franchisee manual
Costs of settling disputes
The franchisor cannot require you to pay its costs to settle a dispute under the agreement.
Franchisor’s legal costs
Franchisors can only seek to pass on legal costs in the franchise agreement (including a renewed
agreement) that arise from the preparation, negotiation and execution of the franchise agreement. To
do so, certain conditions must be met.
A franchisor can require the franchisee to pay a fixed amount for particular legal costs if they are
specified in the franchise agreement, and the agreement states that the amount:
is for the franchisor’s legal costs of preparing, negotiating or executing the agreement
does not include any amount for the franchisor’s cost of legal services that will or may be
provided, after the agreement is entered into, in relation to preparing, negotiating or executing
other documents.
This is to prevent franchisors from passing on legal costs to franchisees that can’t be determined or
quantified at the time franchisees enter into the agreement.
Retrospective changes
Retrospective variation of an agreement can happen when, after entering into the agreement, the
franchisor changes a term of the franchise agreement or includes a new term in the agreement which
applies to actions that occurred before the change was made.
The Code says that after a franchise agreement is made, a franchisor can only alter or add terms to the
agreement that apply retrospectively if the franchisee gives their consent in writing.
End of agreements
Sale of franchise
If you propose to sell your franchised business to another party you must request the franchisor’s
consent in writing. When making the request, you must provide the franchisor with all of the
information that they would reasonably require and expect to be given to make an informed decision.
The franchisor may ask for further information to assist it to make its decision.
The franchisor has to tell you in writing whether it consents to the transfer and whether any conditions
apply. After doing so, the franchisor can withdraw its consent within 14 days by advising you in writing
and setting out the reasons.
Your franchisor must not unreasonably withhold or revoke its consent. They could reasonably withhold
consent, for example, if the proposed transferee is unlikely to be able to meet their financial obligations
as a franchisee or the franchisor’s selection criteria.
If your franchisor does not respond within 42 days, consent is taken as given and there is no opportunity
for the franchisor to withdraw consent.
A franchisee to whom an existing agreement is transferred has cooling-off rights. If the buyer exercises
their cooling-off rights within the 14 day cooling-off period, the franchisee who sold the business to
them will be reinstated if possible and must refund payments that they received under the contract (less
any reasonable expenses). Different cooling-off rights exist for prospective franchisees that enter into a
new agreement (see table at page 15).
19 The franchisee manual
Practical tips
You should check whether any other conditions are attached to your transfer—e.g. a fee.
When selling your franchised business, you should ensure that the proposed buyer evaluates the
purchase independently and is aware of their rights and obligations under the Code.
Termination
The Code sets out procedures that must be followed if the franchisor proposes to terminate your
franchise agreement.
If your franchisor proposes to terminate your agreement because you are in breach of the agreement,
it must give you reasonable notice of the breach in writing, tell you what needs to be done to fix it and
allow you reasonable time (but not more than 30 days) to do this. If you fix the breach within this time,
the franchisor cannot terminate the franchise on this ground.
If your franchise agreement allows your franchisor to terminate your franchise agreement even if you
have not breached your agreement, the franchisor must give you reasonable written notice of the
termination and reasons for it.
For termination for particular grounds set out in your agreement, the franchisor must give you 7 days’
written notice that they are proposing to terminate your agreement. The particular grounds are:
you no longer hold a licence needed to carry on your business
you or your company become bankrupt, insolvent under administration or externally-administered
your company is de-registered
you abandon the franchise or franchise relationship
you are convicted of a serious offence
you operate the business in a way that endangers public health or safety
you are fraudulent in operating the business.
If, after receiving this notice, you give written notice of a related dispute, the franchisor cannot terminate
your franchise agreement for 28 days from when they gave you the written notice of termination. You
should seek to have an ADR practitioner or arbitrator appointed as soon as possible for your dispute so
that you can try to resolve it within this 28 day period. During this time, the franchisor can prevent you
from operating the business by giving written notice if that right exists in your franchise agreement.
The franchisor does not have to comply with the termination procedures if you agree to terminate the
franchise agreement.
Termination can be requested by franchisees
The Code sets out how you can ask to terminate your agreement early. If you propose early termination,
the franchisor must reply to you (in writing) within 28 days. If they refuse to terminate, they must tell
you the reasons why.
End of term
If the term of your agreement is coming to an end, the franchisor must notify you, in writing, whether it
intends to extend your agreement or enter into a new agreement with you.
This notice must be provided at least 6 months before the end of your franchise agreement. However, if
the term of your agreement is less than 6 months, the franchisor must notify you of its decision at least
one month before the end of the term of the agreement.
20 The franchisee manual
Restraint of trade clauses
If you seek to extend your agreement at the end of your franchise term but the franchisor chooses not
to grant the extension, the Code may provide you some protection if the franchisor then attempts to
enforce a restraint of trade against you.
For the protection in the Code to apply, you would need to meet a narrow set of conditions as set out
in the Code. These include that you were not in serious breach of your franchise agreement or any
related agreement immediately before it ended, and that you had not breached any confidentiality or
intellectual property obligations.
You should seek legal advice about the effect of any restraint of trade in your agreement.
Key term
Restraint of trade – a clause that seeks to restrict a franchisee’s ability to operate a similar
business to the franchise after their franchise agreement has come to an end.
21 The franchisee manual - Resolving disputes
Your franchise agreement must set out a procedure for resolving disputes. Franchisors must have an
internal complaint-handling procedure that complies with the Code or, alternatively, they can use the
framework in the Code to resolve disputes.
If a dispute arises in relation to the Code or your franchise agreement, either you or the franchisor
may choose to try to resolve the dispute using the procedure set out in the Code or your
franchise agreement.
You and the franchisor are required to try to resolve the dispute. The obligation to act in good faith
applies (see page 6) during the dispute resolution process.
Internal complaint-handling procedure
This procedure must comply with the steps outlined in the Code for dealing with a dispute (read
‘Dealing with a dispute’, below). This procedure must be set out in your franchise agreement.
Code complaint-handling procedure
The internal complaint-handling procedure represents the minimum standard for complaint handling.
As an alternative to using the franchisor’s internal compliant-handling procedure, you may try to resolve
a dispute using the procedure set out in the Code.
Under the Code’s procedures you can seek to resolve your dispute through an alternative dispute
resolution (ADR) process – meaning mediation or conciliation – and also through voluntary arbitration,
if you and your franchisor have agreed to this in writing. If you and at least one other franchisee have
similar disputes with the same franchisor, multi-party dispute resolution is an option that is available for
resolving these disputes together.
Confidentiality requirements apply to information disclosed or obtained during an ADR or
arbitration process.
22 The franchisee manual
Key terms
ADR practitioner – an ADR practitioner is a conciliator or mediator. They are an independent third
party who will work with you and the franchisor to try and resolve the dispute. ADR practitioners
do not give legal advice or make decisions like a judge; they assist parties to come together and
negotiate an outcome that is acceptable to both parties.
Mediation – a process where an independent third party (a mediator) assists parties to negotiate
and settle their dispute.
Conciliation – a process where the people in dispute try to reach an agreement with the assistance
and advice of an impartial person (a conciliator). The conciliator usually has some experience of the
matter in dispute and can advise the parties of their rights and obligations. A conciliator can make
recommendations to the parties jointly for their consideration.
Arbitration – a formal dispute resolution process in which parties refer their dispute to an
independent third party for a binding decision.
Dealing with a dispute
Alternative dispute resolution
Step 1: Provide your franchisor with written details of the problem, the outcome you are seeking and
how you think the outcome can be met.
Step 2: Try to agree with your franchisor about how to resolve the dispute.
Step 3: If you cannot agree within 21 days, you can refer the matter to an ADR practitioner.
Step 4: If you cannot agree on an ADR practitioner, you or the franchisor can ask the Australian Small
Business and Family Enterprise Ombudsman (ASBFEO) to appoint an ADR practitioner.
Step five: If an ADR process is initiated, you and your franchisor must attend and try to resolve the
dispute. The ADR practitioner appointed for a dispute may decide the time and place for mediation
(although it must be conducted in Australia).
There is no requirement to have legal representation at an ADR process. However, if you do decide
to have your lawyer present, it is recommended that you inform the ADR practitioner of this prior
to attending.
Voluntary arbitration
You and the franchisor can agree, in writing (including in your franchise agreement), to resolve disputes
by arbitration. If so, you or the franchisor can seek to resolve a dispute by initiating an arbitration. You
can do this by asking the ASBFEO to appoint an arbitrator.
The arbitrator will decide how, when and where the arbitration will be conducted. You and the
franchisor must attend the arbitration (which must be conducted in Australia).
Multi-party disputes
If you and at least one other franchisee have similar disputes with the same franchisor, you can agree to
resolve your disputes together.
When deciding whether to resolve disputes together, franchisees involved in the dispute are allowed to
discuss their disputes with each other even if there are confidentiality obligations in their agreements.
If franchisees are concerned that their discussions may breach competition laws, franchisees can notify
the ACCC of their intention to rely on the class exemption for franchisees to collectively bargain with the
franchisor. Please see our guidelines.
23 The franchisee manual
The franchisor and franchisees with similar disputes can agree to resolve their disputes in the same way.
If they cannot agree on how to resolve the disputes, the franchisees may refer their disputes to a single
ADR practitioner for a single ADR process. If the parties cannot agree on who the ADR practitioner
should be, any party can request the ASBFEO to appoint one.
The ADR practitioner may conduct the ADR process even if the franchisor does not agree that all
the disputes should be heard in a single ADR process, or does not agree to the appointment of the
ADR practitioner.
If the ADR practitioner decides to conduct an ADR process, the franchisor must attend and try to
resolve the dispute.
Ending the dispute resolution process
If a dispute is unresolved after 30 days from when you started the ADR process under the Code
complaint-handling procedure, either you or the franchisor may ask the ADR practitioner to terminate
the ADR process.
The ADR practitioner may also choose to terminate the ADR process without a request from either you
or the franchisor at any time unless it is satisfied that the dispute will shortly be resolved.
An arbitrator will terminate an arbitration if you and the franchisor agree to do so.
Costs of dispute resolution
You and the franchisor must pay your own costs for attending an ADR process or arbitration under the
Code complaint-handling procedure.
Unless you have agreed otherwise, you and the franchisor are equally liable for the other costs of an
ADR process. These include the cost of the ADR practitioner, the cost of room hire and the costs of any
additional input (including expert reports) agreed by you and your franchisor to be necessary.
For an arbitration process, you and the franchisor are each responsible for half of all reasonable costs
associated with the arbitration.
Trying to resolve the dispute
You and your franchisor are expected to try to resolve the dispute. This means approaching the
resolution of the dispute in a reconciliatory manner, including by:
attending and participating in meetings at reasonable times
at the beginning of the ADR process or arbitration, making your intention clear as to what you are
trying to achieve through the ADR process or arbitration
observing any obligations relating to confidentiality that apply during or after the ADR process or
arbitration
not acting – including providing inferior goods, services or support – during the dispute in a way
which has the effect of damaging the reputation of the franchise system
not refusing to act – including not providing goods, services or support – during the dispute if the
refusal to act has the effect of damaging the reputation of the franchise system.
24 The franchisee manual
Your legal rights
Your right to take legal action under the franchise agreement is not affected by the dispute resolution
procedures under the Code.
Where the franchisor has been in serious breach of the Code (or your agreement) you may be
entitled to damages, court orders to stop breaches of the Code and other orders (e.g. changes to
the agreement). You should seek legal advice from your solicitor prior to taking legal action against
your franchisor.
Remember: court action can be costly, time consuming and destroy relationships, and there is no
guarantee that the court will find in your favour. This is why you should genuinely attempt to resolve
the dispute through one of the alternative processes available to you before considering legal
action.
25 The franchisee manual - Contact the ACCC
The ACCC enforces the Australian Consumer Law and the Franchising Code, both of which fall under
the Competition and Consumer Act 2010 (the Act). This does not mean that the ACCC takes action
on your behalf if something goes wrong for your franchise. The ACCC takes action for breaches of
these laws where it serves the public interest, and is rarely involved in individual consumer or small
business disputes.
If you believe that your franchisor has breached the Act or the Code, you should report it to the ACCC.
We use reports from the public and other sources of intelligence to help us identify trends and where
we can direct our resources to have the most impact. The ACCC can investigate alleged breaches of
the Code or the Act and can take enforcement action where appropriate. While all reports are carefully
considered by the ACCC, due to the volume of reports we receive, we may not be able to respond to
you if you have not asked a question, or if we do not have information to assist you.
The ACCC cannot pursue all matters that come to our attention. Our role is to focus on those
circumstances that will, or have the potential to, impact vulnerable consumers, harm the competitive
process or result in widespread consumer or small business detriment. We exercise discretion to direct
resources to matters that provide the greatest overall benefit.
Where the ACCC has received a franchising complaint alleging a breach of the Code and/or the Act, it
will often consider whether you have attempted to resolve the dispute yourself and referred the matter
to an ADR process. When deciding whether to pursue a matter, we will prioritise those which fall within
our current priority areas and give particular consideration to those matters which also have certain
priority factors.
Taking private action
Your franchise agreement is a contract that contains many of your legal rights and obligations.
Therefore, you have rights in contract law if the franchisor does not honour the agreement. A franchisee
may have private right of action under the Code, the Australian Consumer Law and the law of contract.
Please note: the ACCC is responsible for administering the Code and the Act. It cannot take action
against a party for breaching a franchise agreement because this is a private contractual issue
between the parties to the contract. For such breaches, you may wish to contact ASBFEO or your
local Small Business Commissioner.
