Early-termination compensation clauses: market exit, network cuts and going online

• It applies to agreements entered into, transferred, renewed or extended on or after 1 November 2025 (s97(3)). Earlier agreements didn't have to include it.
• Compensation must be worked out with specific reference to four things: lost profit, unamortised capital expenditure the franchisor requested, lost opportunity to sell goodwill, and wind-up costs (s43(2)(b)).
• The agreement must also let the franchisee return specified stock, and non-reusable specialty equipment, branded product or merchandise, for buy-back or compensation (s43(3) and (4)).
• It can't exclude compensation the franchisee may be entitled to outside the agreement when the agreement ends early for a reason other than their breach (s43(5)).
• Each of s43(2), (3) and (5) carries up to 600 penalty units, which is $218,400 per contravention from 1 July 2026.
• New car dealership agreements have a stricter version, s45, in the Code's higher penalty tier.

Section 43 is tied to three franchisor decisions, each limited to Australia.

• Withdrawing from the Australian market: the franchisor stops running the system here and ends agreements before they expire.
• Rationalising its networks in Australia: the ACCC's example is a franchisor reacquiring certain franchised territories to operate company-owned stores.
• Changing its distribution models in Australia: the ACCC's example is switching from bricks-and-mortar stores to online-only sales.
• Early termination only: the clause deals with ending an agreement before it expires for one of these reasons, not with non-renewal at the end of the term. New car dealerships differ, because s45 also covers non-renewal.
• Not franchisee breach: termination for breach follows s55, which requires notice and a reasonable time to fix the breach, and the 7-day grounds in s57 and s58 are separate.
• Not a franchisee's exit request: if the franchisee proposes ending the agreement, s54 requires a written reply within 28 days, with reasons if you refuse.

The agreement must specify how compensation is determined, with specific reference to four factors. The ACCC's October 2025 guidance gives an example of each.

1. Lost profit from direct and indirect revenue: what the franchisee would have earned from sales and other income streams during the rest of the term had it not ended early.
2. Unamortised capital expenditure requested by the franchisor: the ACCC's example is a $20,000 coffee machine the franchisor required, designed to last 10 years, when the agreement ends in year 3. Illustratively, after 3 years of a 10-year life, about $14,000 remains on a straight-line basis.
3. Loss of opportunity in selling established goodwill: the value of the business's reputation or customer base that the franchisee can no longer sell.
4. Costs of winding up the franchised business: the ACCC lists paying out leases, reinstatement and make-good of the premises, staff entitlements and accounting fees.
5. A method, not just a list: set out how each factor will be measured, such as which accounts are used and the valuation date, so the clause can actually be applied.

• The agreement must let the franchisee return, and require the franchisor to accept and buy back or compensate for, all outstanding stock the franchisee bought that the franchisor specified and required under the agreement or operations manual (s43(4)(a)).
• It must also cover all essential specialty equipment, branded product or merchandise that the franchisor specified and required, and that can't be repurposed for a similar business (s43(4)(b)).
• The ACCC's florist example: a franchisor that ends its agreements to move from franchised stores to direct-to-consumer online sales must buy back or compensate for branded floral wraps and branded external signage, because they can't be used elsewhere.
• In the same example, fridges and the computer system could be reused in a similar business, so the franchisor doesn't have to buy them back.
• Good drafting practice: define which items count as specified, set a valuation basis such as cost or written-down value, and set a process and timeline for return and payment.
• Disclosure: item 17B summarises each party's early termination rights, and item 18(1)(d) covers arrangements for unsold stock, equipment and other assets.

• No. A franchisor must not enter into an agreement containing a provision that purports to exclude any compensation the franchisee may be entitled to, other than under the agreement, when it ends early for any reason other than the franchisee's breach (s43(5)).
• That reaches beyond the three triggers: it covers any early termination that isn't for the franchisee's breach.
• Check for 'sole remedy', 'no compensation' or broad release wording, including in documents the agreement relies on, such as the operations manual.
• Section 39 separately bans general releases of the franchisor's liability and waivers of representations it made.
• Unfair contract terms law can also catch one-sided termination and fee clauses in standard form contracts, and the ACCC's 2026–27 priorities include early-termination fees.

1. Name the three triggers in the words of s43(2)(a): withdrawing from the Australian market, rationalising networks in Australia, and changing distribution models in Australia.
2. For each of the four factors, set a method: a formula or valuation approach, the valuation date and the records it will use.
3. Add the return and buy-back mechanism for specified stock and for non-reusable specialty equipment and branded items.
4. Remove any exclusion of other compensation for early termination that isn't for the franchisee's breach.
5. Keep a register of capital expenditure you request from each franchisee, so unamortised amounts can be calculated.
6. Update the item 17B summary and item 18 in the disclosure document to match.
7. Use the updated template for every new agreement, renewal, extension and transfer from 1 November 2025.
8. Make sure the clause fits your no-breach termination process, which needs reasonable written notice and reasons (s56).

• When your agreement was entered into, transferred, renewed or extended. Before 1 November 2025, s43 didn't require the clause.
• Whether all three triggers and all four factors are covered, with a method you could follow.
• Which stock and equipment the buy-back covers, and how it will be valued.
• Any wording that tries to exclude compensation outside the agreement for early termination that isn't for your breach.
• Whether the disclosure document's item 17B summary and item 18(1)(d) match the agreement.
• Your own records: keep invoices for fit-out, capital spending the franchisor asked for, and stock and equipment purchases.
• If there's a dispute, use the agreement's complaint procedure. After 21 days, either party can refer it to mediation through the Australian Small Business and Family Enterprise Ombudsman.

• The template has an s43 clause covering all three triggers and all four factors.
• The buy-back list and valuation method are defined.
• No clause excludes other compensation for early termination that isn't for breach.
• Disclosure items 17B and 18 match the agreement.
• Capital expenditure requests are logged for each franchisee.
• Renewals, extensions and transfers since 1 November 2025 used the updated template.