The main source of regulation for franchises is the Franchising Code of Conduct, which regulates the conduct of franchisors. The Code is mandatory and commenced on 1 January 2015. It applies to all franchises renewed extended or transferred after that date, as well as new franchises. Further amendments to the Code were made on 1 July 2021, to improve transparency and fairness in the franchising sector. The Code is regulated by the Australian Competition and Consumer Commission. For further detailed information regarding franchises visit the Franchising page on the ACCC website.

A franchise is a system of business developed by the franchisor who is then able to sell the rights to use the system to others, usually for an agreed period. The franchisee may also have to buy or lease the normal aspects of a business, including premises and plant and equipment in addition to entering into the franchise itself.

A prescribed Information Statement must be given to a prospective franchisee before the franchisor gives them other disclosure related documents (see Clause 9 and 9A of the Code). This statement contains a checklist of important steps to consider prior to signing a franchise agreement. This includes learning about franchising, conducting due diligence, obtaining professional advice and considering other options (for example, looking at more than one franchise business).

The prospective franchisee must be given a minimum of 14 days to read all the information that a franchisor provides, including the franchise agreement, disclosure document, key facts sheet and information about any lease arrangement.

By 14 November 2022, franchisors will be required to upload key disclosure information to the Franchise Disclosure Register for prospective franchisees to view. The register will allow prospective franchisees to search, view and compare information and contact a franchisor about opportunities to buy into the franchise.

A franchisee may terminate a new franchise agreement within 14 days after signing the agreement. If the prospective franchisee terminates the agreement, all payments must be refunded (excluding any reasonable expenses already incurred by the franchisor). This is known as the 'cooling off' period. 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.

Buying a franchise can be expensive. It is important to get legal and accounting advice before entering into a franchise agreement to understand how it works and whether it is going to be profitable. Talk to other franchisees to see how they have managed.

Running a franchise may involve long working hours and take some time before it is profitable. Remember that some of the income goes towards the franchisor for the rights to use the system. A franchisee may also be required to contribute to marketing costs and some legal costs (although these are limited under the Code).

Dealing with Disputes

The Code sets out a regime for dealing with disputes arising out of the franchising agreement. This dispute resolution regime is intended to avoid costly legal proceedings by encouraging mediation.

Ending a franchise

The Code sets out a procedure for early termination by a franchisee, which must be in writing. Most franchises have an end date, but there may be many reasons for early termination. For example, illness or death of an owner or partner, or dissatisfaction with the performance of the franchise. If a franchisee proposes an early termination, the franchisor must respond within 28 days, and give reasons if the request is refused.

If the franchisor wishes to end the agreement early, notice must be given to the franchisee. The franchisor can terminate without notice in certain circumstances, including if the franchisee is bankrupt or is externally administered (liquidation), or abandons the business.