Disclosing significant capital expenditure: how to identify, estimate and word it

• The ACCC treats spending as likely to be significant if it is large compared with the franchisee's investment, profit or turnover, goes beyond normal maintenance, or could threaten solvency.
• Major refurbishments and fit-outs, relocations, rebranding, and equipment, software or technology upgrades are all likely to count.
• If you can't pin down a cost, you still disclose that it's possible, what could trigger it, similar examples and a reasonable high and low range.
• You must discuss disclosed spending, and how the franchisee is likely to recoup it in their area, before you enter into, renew or extend the agreement (s47).
• Undisclosed significant capital expenditure can generally be required only through the other routes in s60: majority approval, legal compliance or the franchisee's agreement.
• A disclosure document that doesn't meet s20 can attract up to 600 penalty units, which is $218,400 per contravention from 1 July 2026.

The Code doesn't define 'significant'. The ACCC's October 2025 guidance gives three tests and says the answer will differ by franchisee and by factors such as size, timing and impact.

• Size relative to the business: spending that is large compared with the franchisee's initial investment, profits or turnover. The ACCC's example is a $100,000 refurbishment every 5 years on a franchise that cost $500,000, which is likely to be significant.
• Beyond the ordinary: spending that goes beyond normal repairs, maintenance, end-of-usable-life replacement or normal inventory requirements.
• Solvency risk: spending that would make it hard for the franchisee to stay solvent or profitable. The ACCC's example is $200,000 of specialised equipment equal to 60% of annual turnover, which the business is unlikely to cover once loan repayments, rent, wages and royalties are paid.
• Typical categories: major store refurbishments and fit-outs, relocations, rebranding, and equipment, software or technology upgrades.
• Landlord-driven costs: the ACCC notes some spending may be required by a landlord under a lease, and it can still be significant for the franchisee.
• When in doubt, the ACCC recommends independent advice, and its model disclosure document guidance warns that getting it wrong may result in penalties.

1. List every capital item your agreement, operations manual or standard lease lets you require: fit-out standards, refurbishment cycles, signage, equipment, vehicles, and point-of-sale hardware and software.
2. Sort each item into the ACCC's three patterns: system-wide (a rebrand, IT or system upgrade), scheduled (a store refurbishment every 5 years) or event-triggered (lease renewal, a performance review, damage, destruction or relocation).
3. Ask your board and senior team what is planned within a typical term, such as a new brand identity, technology platform or store format. Planned changes belong in the document even if the date isn't fixed.
4. Test each item against a franchisee's likely investment, turnover and profit by site type, using your own network data, and flag anything that could strain cash flow.
5. Decide the headline answer for item 14(1A): you will require significant capital expenditure, you may require it, or you don't expect to require any.
6. Gather the evidence behind each estimate, such as supplier quotes, recent refit invoices and board papers. Documents that support statements in the disclosure document must be kept for at least 6 years after it was last given to anyone (s37(2)).
7. Repeat the exercise at every annual update and when major changes happen, as the ACCC recommends, and update your Franchise Disclosure Register profile.

The ACCC says uncertainty isn't a reason to leave spending out. If precise details aren't known, disclose:

• That the expenditure is possible but not certain.
• The events that could trigger it, such as a lease renewal, a change in brand standards or equipment reaching the end of its life.
• Examples of similar expenditure, such as the cost range of your last refurbishment cycle.
• A reasonable high and low range for the cost. The ACCC's model disclosure document guidance warns against excessive ranges for establishment costs, and the same discipline makes a capex range useful.
• The basis and date of each estimate, and whether figures include GST, so a franchisee can judge how current they are.
• Only what you can support: the ACCC warns that false representations or claims about future matters can be misleading under the Australian Consumer Law.

The Code prescribes the content, not the words. A structure like this, repeated for each item, covers every element of item 14(1B). The figures are placeholders, not legal drafting.

1. Headline (item 14(1A)): 'The franchisor will require the franchisee to undertake significant capital expenditure during the term, as described below.' Or say it may be required, or that none is expected.
2. Nature: what the work is, such as a full store refurbishment to the current brand standard, covering flooring, counters, lighting and signage.
3. Rationale: why it's needed, such as keeping stores consistent with the brand and replacing fittings at the end of their useful life.
4. Timing: when it happens or what triggers it, such as in year 5 of the term, or on renewal of the premises lease if that comes first.
5. Amount: a figure or a reasonable range, how and when it was estimated, and whether it includes GST, for example 'estimated at $80,000 to $120,000 excluding GST, based on 2025–26 contractor quotes'.
6. Who pays and how: the franchisee directly, or partly from a refurbishment or other specific purpose fund. The ACCC's rebrand case study says to state whether a fund will pay for any part.
7. Outcomes and benefits: what you expect the spending to achieve, stated carefully and without promising results you can't support.
8. Risks: such as trading disruption during the works, cost increases, finance availability, and a mismatch with the remaining lease or franchise term.
9. Cross-references: whether you'll consider the spending at the end of the term (item 18(1)(g)), and a note that it will be discussed before signing (s47).

• A $100,000 refit every 5 years on a $500,000 franchise: likely significant, on the ACCC's own example. Disclose the cycle, the cost range and the trigger.
• $200,000 of specialised equipment for a business turning over about $333,000 a year: likely significant, because it equals 60% of turnover and could threaten solvency.
• A network rebrand within 12 months covering signage, website, point-of-sale material, uniforms and marketing: the ACCC's gym case study calls this likely significant, and says franchisees should get reasonable written notice of the timing and proposed cost, and be consulted.
• Replacing a worn-out appliance with a like-for-like model at the end of its usable life: may not be significant, because the ACCC's test looks for spending beyond normal end-of-life replacement. Scale still matters for a small business.
• A new point-of-sale or software platform across the network: likely significant, since the ACCC lists software and technology upgrades.
• A refurbishment the landlord requires when the lease is renewed: disclose it as event-triggered spending if you can foresee it, and check it can be recouped within the remaining term.

• You can require significant capital expenditure during the term only if it was disclosed in a disclosure document given before the latest entry, renewal or extension; is incurred by all or a majority of franchisees and approved by a majority of them; is needed to comply with the law; or the franchisee agrees (s60(2)).
• Requiring it any other way breaches s60(1), which carries up to 600 penalty units.
• A disclosure document without the item 14(1A) statement doesn't comply with s20, which carries the same maximum.
• Claims about future costs and benefits can be misleading under the Australian Consumer Law if you have no reasonable basis for them.
• Spending a franchisee can't recoup within the term also weakens your position under s44, which requires a reasonable opportunity to make a return on the investment you require.

• Item 14(1A) gives a clear answer, not just a reference to a clause in the agreement.
• Every item has a rationale, an amount or range, timing or a trigger, its nature, benefits and risks.
• Ranges are reasonable, dated and based on real quotes or recent costs.
• Any part paid from a specific purpose fund is identified, and item 15 matches.
• Item 18(1)(g) says whether you'll consider the spending at the end of the term.
• Supporting documents are filed and kept for at least 6 years.
• Your recruitment team has an agenda for the s47 discussion.