Refused a renewal? When a post-term restraint of trade stops working

• Paying genuine compensation for goodwill keeps the restraint available to the franchisor, as the ACCC's worked example shows.
• The rule covers agreements entered into, renewed, extended or transferred from 1 April 2025 (s97). Some ACCC guidance lists it among the 1 November 2025 changes, but the Code doesn't delay it.
• Entering into an agreement with a caught restraint (s42) and relying on one (s67) each carry up to 600 penalty units, which is $218,400 for conduct from 1 July 2026.
• It applies only when the agreement expires. The ACCC says restraints still apply if the agreement was ended early because you breached it.
• Restraints are common: in FranchiseScope's analysis of Franchise Disclosure Register profiles captured on 19 August 2026, 998 of 1,103 profiles answering the question (90.5%) said the agreement includes a restraint of trade or similar clause. The answers are self-reported by franchisors.

All eight conditions must be true. If any one fails, s42 doesn't stop the restraint, although other law might.

1. The agreement expires. Section 42 is about expiry, not early termination.
2. The agreement contained an option for you to renew or extend it.
3. Before expiry, you gave the franchisor written notice seeking to renew or extend on substantially the same terms as those in its current franchise agreement, which apply to other franchisees or would apply to a new one.
4. Before expiry, you met any conditions the agreement set for renewal or extension.
5. Immediately before expiry, you weren't in serious breach of the agreement or any related agreement.
6. During the term, you didn't infringe the franchisor's intellectual property or a confidentiality agreement with it.
7. The franchisor didn't renew or extend the agreement.
8. Either you claimed goodwill compensation and received only a nominal amount that wasn't genuine compensation, or the agreement didn't let you claim goodwill compensation at all.

The old rule was clause 23. It still governs agreements that haven't been renewed, extended or transferred since 1 April 2025.

• Effect: under clause 23, a caught restraint simply had no effect after expiry. Under the current Code, including one in an agreement (s42) or relying on one (s67) is a civil penalty breach.
• Renewal as well as extension: clause 23 referred only to a franchisee seeking to extend. Section 42 covers renewal too, which Treasury's key changes table highlights.
• Extra conditions: s42 also requires that the agreement contained an option to renew or extend, and that you met the renewal conditions. Clause 23 had no equivalent conditions.
• Same core: written notice on current standard terms, no serious breach, no IP or confidentiality infringement, and no genuine goodwill compensation feature in both.
• Timing conflict: the Code applies s42 and s67 from 1 April 2025 (s97), and the restraint section of the ACCC's 13 October 2025 guide refers to agreements after 1 April. The ACCC's guidance webpage lists the rule among the 1 November changes.

The last condition gives franchisors a choice: pay genuine compensation for goodwill, or lose the ability to rely on the restraint in this scenario.

• The ACCC's example: a dog grooming franchisee signed a 5-year agreement on 30 April 2025, with a conditional right to renew or extend for another 5 years and a 12-month restraint covering its exclusive territory. The agreement didn't allow the franchisee to claim genuine goodwill compensation.
• In 2030 the franchisee sought to renew and met every criterion, but the franchisor refused, and the agreement ended on 29 April 2030.
• The ACCC's conclusion: the franchisor can't rely on or enforce the restraint unless it pays genuine compensation for goodwill.
• The Code doesn't define genuine compensation. It says a merely nominal amount isn't enough, so a token payment won't do. Get a valuation if the amount is in dispute.
• Goodwill rights are rare: in the same Register analysis, only 107 of 1,019 profiles answering (10.5%) said franchisees have rights relating to goodwill they generate.
• The ACCC's information statement warns that franchisors generally aren't required to pay for goodwill when an agreement ends, and that you may not get any value for it.

• Early termination: the ACCC's guidance says restraints still apply if the agreement was ended early because you breached it.
• The agreement had no option to renew or extend, so the second condition isn't met.
• You didn't ask in writing before expiry, or you asked for better terms than the franchisor's current standard agreement.
• You hadn't met a condition the agreement set for renewal.
• You were in serious breach immediately before expiry, or had infringed the franchisor's IP or confidentiality.
• The franchisor paid genuine goodwill compensation.
• You chose not to renew, so the franchisor didn't refuse.
• Your agreement is still under the 2014 Code, where clause 23 applies instead.

Even where s42 doesn't help, a restraint can be challenged in other ways. The ACCC's guidance says restraints must not be unfair or go beyond what is reasonably necessary to protect the franchisor's legitimate interests.

1. About 12 months out, find the option clause: the notice window, the conditions, and whether the franchisor's current agreement will apply.
2. Fix any breaches early. You need to be clear of serious breach immediately before expiry.
3. Watch for the franchisor's end-of-term notice. For terms of 6 months or more, it is due at least 6 months before expiry (s36).
4. Exercise the option in writing, before expiry and within any window the agreement sets, seeking renewal on substantially the franchisor's current standard terms.
5. Keep proof: a copy of your notice and evidence of when it was delivered.
6. If the franchisor refuses, claim goodwill compensation in writing if the agreement lets you.
7. Before opening a competing business, get legal advice on whether every s42 condition is met. Starting too early could put you in breach of the restraint.
8. If the franchisor threatens to enforce the restraint, give a written notice of dispute under the complaint procedure (s72), and consider reporting reliance on a caught restraint to the ACCC (s67).

• Check every agreement entered into, renewed, extended or transferred from 1 April 2025 for a restraint that would apply in the s42 scenario, including in attached or referenced documents.
• Decide your goodwill position. If you want the restraint available when you refuse a valid renewal, the agreement needs a way for the franchisee to claim genuine goodwill compensation.
• Before refusing a renewal, document the reasons and check each s42 condition, including whether the franchisee was in serious breach immediately before expiry.
• Don't threaten to enforce a restraint that s42 catches. Relying on it, or purporting to, breaches s67.
• Keep restraints no wider than reasonably necessary. In September 2026, after ACCC concerns about unfair contract terms, a fitness franchisor narrowed its restraints.
• Disclose the restraint and any goodwill rights accurately in item 18 of the disclosure document and in your Register profile.
• Give the end-of-term notice on time (s36). Good faith applies to the whole process (s18).

• Does my agreement give me an option to renew or extend, and is it conditional?
• What restraint applies after expiry, where, and for how long?
• Does the agreement let me claim goodwill compensation if I'm not renewed?
• What are the renewal conditions, and am I meeting them now?
• When does the option window open and close?
• Which Code governs my agreement: the 2014 Code or the current one?
• Have I kept proof of every notice I've sent and received?