---
title: "Franchise Agreement Pitfalls | Astris Law"
url: https://www.astrislaw.com/article/franchise-agreement-pitfalls-australia
description: "Guide to franchise agreement pitfalls in Australia. Franchising Code obligations, disclosure requirements and protections for franchisees."
lang: en-AU
---

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Publication 11 February 2026 • 5 min read

# Franchise Agreement Pitfalls: What Australian Franchisees Should Know

## Summary

Buying a franchise involves significant legal and financial commitments. This article examines the Franchising Code of Conduct, mandatory disclosure requirements, common contractual pitfalls and protections available to Australian franchisees.

Last reviewed 11 February 2026 · Reviewed by Jamie Nuich (https://www.astrislaw.com/attorney/jamie-nuich), Legal Practitioner Director

## Key Takeaways

- The Franchising Code of Conduct (Competition and Consumer (Industry Codes - Franchising) Regulations 2024, which commenced on 1 April 2025) requires franchisors to provide a disclosure document at least 14 days before a franchise agreement is signed or any non-refundable payment is made.
- Prospective franchisees must give the franchisor signed statements that they have obtained independent legal, business and accounting advice (or that they were told to seek it and chose not to), and the franchisor must not enter the agreement until this has occurred.
- Common contractual pitfalls include excessive unilateral variation powers for the franchisor, unclear territorial rights, onerous renewal conditions and restrictive exit and transfer clauses.
- The unfair contract terms regime has applied to franchise agreements that are standard form contracts with small businesses since 2016, with civil penalties for unfair terms added by the November 2023 amendments to the Australian Consumer Law, and the ACCC has identified franchising as a priority sector for enforcement.

Image: A franchisee reviewing a franchise agreement, illustrating common pitfalls for Australian franchisees (https://www.astrislaw.com/images/articles/franchise-dispute.jpg)

In This Article

1. 1. The Franchising Code of Conduct
2. 2. Common Pitfalls in Franchise Agreements
3. 3. The Good Faith Obligation
4. 4. Unfair Contract Terms and Franchising
5. 5. Conclusion

Franchising is a significant sector of the Australian economy, with thousands of franchise systems operating across the country. For prospective franchisees, a franchise agreement represents a major financial and legal commitment, often involving personal guarantees, fit-out costs, ongoing royalties and restrictions on how the business can be operated. The Franchising Code of Conduct ("the Code"), a mandatory industry code under the Competition and Consumer Act 2010 (Cth), regulates the relationship between franchisors and franchisees. At Astris Law, we advise both incoming and existing franchisees on their rights under the Code and the enforceability of franchise agreement terms.

**Entering or exiting a franchise?** We advise franchisees on agreement review, disputes and compliance under the Franchising Code. Call (07) 3519 5616 (+61735195616).

## The Franchising Code of Conduct

The current Code, the Competition and Consumer (Industry Codes - Franchising) Regulations 2024, is prescribed under s 51AE of the Competition and Consumer Act 2010 (Cth). It commenced on 1 April 2025 and replaced the 2014 Code, with transitional rules for agreements entered into before that date. Key protections under the Code include:

- **Disclosure document:** The franchisor must provide a comprehensive disclosure document at least 14 days before the franchisee enters into the agreement or makes any non-refundable payment. The disclosure document must contain detailed information about the franchise system, the franchisor's financial position, litigation history and the obligations of each party
- **Key facts sheet:** A summary document highlighting the most important information a prospective franchisee needs to consider
- **Cooling-off period:** Franchisees have a 14-day cooling-off period after entering into a franchise agreement (or making any payment under it), during which they can terminate the agreement and receive a refund of payments (less the franchisor's reasonable expenses)
- **Good faith obligation:** Both parties must act in good faith in their dealings with each other. This obligation applies throughout the life of the franchise relationship
- **Dispute resolution:** The Code prescribes a dispute resolution process that includes internal complaint handling and mediation or conciliation through the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), which replaced the Office of the Franchising Mediation Adviser in 2021

## Common Pitfalls in Franchise Agreements

### Earnings Claims and Financial Projections

One of the most common sources of franchise disputes is the gap between expected and actual earnings. While the Code does not require franchisors to provide earnings information, if they do, it must be included in the disclosure document and must have a reasonable basis. Verbal representations about potential earnings that are not reflected in the disclosure document can constitute misleading or deceptive conduct under the Australian Consumer Law.

### Territory and Exclusivity

Franchisees should carefully examine what territory rights (if any) the agreement provides. Some franchise agreements grant exclusive territories; others provide no territorial protection at all, meaning the franchisor can open additional outlets or grant additional franchises in the same area. The scope of any territorial right, including whether it covers online sales, should be clearly understood before signing.

### Renewal and Exit Terms

Many franchise agreements grant the franchisor significant discretion over renewal. The Code requires the franchisor to give at least 6 months' notice if it proposes not to renew an expiring franchise agreement. However, franchisees should understand the renewal conditions, including whether they may be required to sign a new agreement on different terms, upgrade fitout at their own expense or pay a renewal fee.

Exit is often the most difficult aspect of franchising. Franchise agreements typically restrict the franchisee's ability to sell the business (requiring franchisor consent), impose restraint of trade obligations post-termination and may require the franchisee to pay a transfer fee.

### Franchisor's Unilateral Powers

Many franchise agreements reserve broad powers to the franchisor to vary operational requirements, marketing fund contributions, product specifications and pricing. Franchisees should understand the extent of these powers and whether there are any limits on how they can be exercised.

## The Good Faith Obligation

The Code imposes an obligation on each party to a franchise agreement to act in good faith in dealings with the other party. This obligation has been interpreted by the courts to include honesty, cooperation and not acting in a way that undermines the other party's legitimate interests. However, good faith does not prevent a party from exercising their contractual rights. It requires that those rights be exercised honestly and not capriciously.

## Unfair Contract Terms and Franchising

The unfair contract terms regime has applied to franchise agreements that are "standard form contracts" with small businesses since November 2016, and since the November 2023 amendments to the Australian Consumer Law unfair terms attract civil penalties. This means that terms in franchise agreements that create a significant imbalance in rights and obligations may be declared unfair and attract civil penalties. The ACCC has identified franchising as a priority sector for UCT enforcement.

## Conclusion

A franchise agreement is one of the most consequential commercial contracts a small business operator will ever sign. Before entering into a franchise, prospective franchisees should obtain independent legal and financial advice, scrutinise the disclosure document, understand all fees and charges, assess territorial rights and exit terms and ensure they are comfortable with the franchisor's unilateral powers. Jamie Nuich at Astris Law advises franchisees on pre-entry due diligence, franchise agreement review, dispute resolution and exit strategies under the Franchising Code of Conduct.

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This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of, or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.

Related Practice Area

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