Franchise agreement

What it means

The franchise agreement is the central legal document of the franchise relationship. It sets out the term (length) of the arrangement, the fees payable, the territory, the franchisor's ongoing support and control over how the business is run, the standards the franchisee must meet, and the rights of each party when the agreement ends. In Australia it does not stand alone: it operates alongside the mandatory Franchising Code of Conduct, which overrides any contract term that tries to contract out of the Code's protections.

Under the Code, a franchisor cannot simply hand over an agreement and have it signed on the spot. It must first give the prospective franchisee the ACCC's information statement, then the disclosure document, a copy of the Code and the agreement in the form it will be signed, and it cannot sign the agreement until 14 days after they are received (the consideration period). A separate 14-day cooling-off period then runs from entering into the agreement.

The 2025 Franchising Code (the Competition and Consumer (Industry Codes, Franchising) Regulations 2024, in force from 1 April 2025) applies to any franchise agreement entered into, renewed, extended or transferred on or after that date. Both parties owe each other a statutory obligation to act in good faith across the whole life of the agreement, and serious breaches of the Code can attract civil penalties.

In practice

Before signing, a prospective franchisee should read the agreement against the disclosure document, and ideally have it reviewed by a lawyer and accountant experienced in franchising. Key clauses to understand include the term and renewal rights, all fees (initial, royalty and marketing levy), territory and whether it is exclusive, restraint-of-trade obligations after exit, transfer conditions, and the grounds on which the franchisor can terminate.

Because the agreement is usually a standard-form contract drafted by the franchisor, individual clauses are often non-negotiable. What a franchisee can do is use the consideration and cooling-off periods, ask questions, speak to current and former franchisees, and confirm that the version being signed matches what was disclosed. Any material change to the agreement generally restarts the 14-day consideration period.

A real example

A prospective café franchisee receives the disclosure document, a copy of the Code and the agreement in the form it will be signed on 1 March. Under the consideration period the franchisor cannot sign with them until at least 15 March, and any deposit paid before then must be refunded within 14 days if they ask in writing. They sign on 20 March; the 14-day cooling-off period then runs to 3 April, during which they can withdraw and recover payments, less any reasonable expenses the agreement sets out. The agreement itself sets a five-year term with two five-year renewal options, a 7% royalty and a 2% marketing levy.

Franchise agreement, FAQs