A franchise agreement review is not a box to tick after you have decided to buy. It is the step that tells you whether the business you are buying is the business you think it is. Franchise agreements run to dozens of pages, they are usually drafted by the franchisor's lawyers, and many people sign after a skim because the commercial opportunity has already won them over. The checklist below gives you a way to read the document with purpose.
One threshold point first. The rules changed on 1 April 2025, when the new Franchising Code of Conduct commenced under the Competition and Consumer (Industry Codes—Franchising) Regulations 2024. Agreements signed before that date stay on the old Code until they are renewed, extended or transferred. Some obligations, including the requirement for a reasonable opportunity to make a return on your investment, only apply to agreements entered into, renewed or extended from 1 November 2025. For anyone signing now, all of the new rules apply. If you are buying an existing franchise, a transfer brings the agreement under the new Code, which can matter a great deal.
Start with the disclosure documents, not the agreement
The Code requires the franchisor to give you a disclosure document at least 14 days before you sign, along with a copy of the Code and the agreement in near-final form. Only minor changes are permitted during that window. The ACCC guidance on the Code changes sets out what the disclosure document must cover: the franchisor's solvency, the costs of setting up and running the business, supply restrictions and rebates, and franchising-related legal action.
Read the disclosure document against the agreement. If the disclosure says one thing about fees or territory and the agreement says another, ask why in writing. The disclosure document also has to summarise how the agreement can end early, so use it as your map to the termination clauses.
From 1 November 2025, the disclosure document must also cover significant capital expenditure you may be required to incur. There is no dollar threshold in the Code. The ACCC's examples include a $100,000 refurbishment every five years on a $500,000 purchase, and a $200,000 equipment purchase equal to 60 per cent of turnover. The franchisor is expected to discuss this with you and explain how the spend is likely to be recouped before the agreement is signed.
Territory and exclusivity
The Code does not set out detailed rules on territory rights, so this is a clause you have to test on its own terms. Ask:
- Is the territory defined by geography, postcode, population or something vaguer?
- Is it exclusive, or can the franchisor place another outlet nearby?
- What happens if the franchisor opens an online store or a channel that sells into your area?
- Can the territory be changed unilaterally, and on what notice?
The ACCC lists too many outlets in close proximity as a red flag when assessing whether a franchise gives a reasonable opportunity to make a return. If the territory clause is silent on encroachment, that silence usually favours the franchisor.
Fees, levies and marketing funds
Map every payment the agreement allows the franchisor to charge. That includes the initial fee, royalties, marketing levies, renewal fees, transfer fees and any technology or training charges. Then check the variation mechanism. A clause allowing the franchisor to adjust fees unilaterally is worth negotiating, particularly if the adjustment power is open-ended.
Marketing and other specific purpose funds have their own rules from 1 November 2025. The franchisor must hold the money in a separate account and contribute for its corporate stores on the same basis as franchisees. It must also prepare an audited financial statement within four months of financial year end, unless 75 per cent of contributing franchisees vote against the audit. The statement goes to franchisees within 30 days of preparation. The ACCC guidance on specific purpose funds notes that vague line items, such as "social media" at 20 per cent of spend, are unlikely to comply. Ask to see the most recent fund statement before you sign.
Renewal and term length
There is no automatic right to a further term unless the agreement says so. Check the end date, the renewal conditions and whether the franchisor can refuse renewal on broad grounds. The franchisor must give written end-of-term notice at least six months before the term ends, or one month for terms under six months, stating whether it will extend or offer a new agreement.
Term length also connects to the return-on-investment rule. The ACCC gives the example of a five-year term where the return on investment takes about four years on an undeveloped site, and flags a mismatch between the franchise term and the lease term as a risk. If your lease ends before your franchise term, or the reverse, work out who carries that risk.
Restraint of trade and exit provisions
Post-term restraints are common. The Code now restricts a franchisor from including or enforcing a restraint where all of the following apply: there was an option to renew, you gave written notice before expiry asking for substantially the standard current terms, you met the renewal conditions, you were not in serious breach, the franchisor chose not to renew, and you received only nominal goodwill compensation or had no goodwill claim. A restraint must also be no wider than reasonably necessary to protect the franchisor's legitimate interests.
On exit, check what happens if the franchisor withdraws from the Australian market, rationalises its network or changes its distribution model. Agreements entered into or renewed from 1 November 2025 must include fair compensation for these events, worked out by reference to lost profit, unamortised capital expenditure the franchisor required, lost goodwill-sale opportunity and wind-up costs. Buy-back obligations should cover stock and branded equipment that cannot be repurposed.
Note that ending the franchise agreement does not end a lease, a loan or a supplier contract. Those are separate obligations, and leasing law differs by state. In Victoria, for example, retail leases are governed by the Retail Leases Act 2003.
Unfair terms and dispute clauses
Since 9 November 2023, businesses have been prohibited from proposing, using or relying on unfair terms in standard form contracts with small businesses, with penalties now attached. The ACCC has said franchise agreements commonly qualify as standard form contracts even where minor changes can be negotiated. The ACCC's warning to franchisors on unfair contract terms is worth reading before you review the dispute and termination clauses.
The Code lists terms that should not appear in an agreement, including unreasonable post-term restraints on working elsewhere, clauses making you pay the franchisor's costs of dispute resolution, retrospective unilateral changes without consent, broad liability releases favouring the franchisor, and waivers of statements the franchisor made to you.
Cooling-off and getting advice
You have 14 days after entering the agreement to terminate in writing and receive a refund. The franchisor may keep reasonable expenses only if the agreement sets out what those expenses are or how they are calculated. From 1 November 2025 the cooling-off period can be waived in writing, but only where you have or recently had a substantially similar agreement with the same franchisor and the business is substantially the same. Waiving it removes your right to terminate and get your money back, so treat that option with care.
The ACCC recommends independent legal advice before signing. If you are also reviewing related documents, our shareholder agreement review checklist covers the ownership and governance questions that sit alongside a franchise purchase, and our guide to personal guarantees explains what a director's guarantee can expose you to.
We review franchise and business agreements for a fixed fee with a 48-hour turnaround, so you can put questions to the franchisor while there is still room to negotiate. The Independent Review of the Franchising Code of Conduct is useful background if you want to understand why the current rules look the way they do.
This information is general in nature. Contact us for advice specific to your situation.
