Key Changes and Steps for Compliance with the Upcoming Franchising Code Reforms
From 1 April 2025, the Franchising Code of Conduct will introduce reforms to franchise agreements, disclosure protocols, and compliance requirements.
We will now briefly set out some of these key changes you should be aware of:
The new Code applies to agreements entered into from 1 April 2025.
Existing agreements signed before 1 April 2025 remain under the current Code but adopt the new Code upon renewal, assignment or extension.
Obligations commence on staggered dates, with some from 1 April 2025 and others from 1 November 2025.
Franchisors should update documents, train teams, and revise systems promptly.
Termination Rules Changes
Franchisors may still terminate agreements with 7 days' notice under specific grounds, but franchisees rights to dispute this have changed:
Disputable Grounds for Termination:
Ceasing business operations.
Compromising public health or safety.
Engaging in fraudulent conduct.
Undisputable Grounds:
Breaches of the Migration Act 1958 (Cth) or Fair Work Act 2009 (Cth).
Other breaches listed under Section 57.
Compensation for Early Termination (Section 43)
Franchisors may owe compensation if agreements are terminated prematurely due to:
Exiting the Australian market.
Restructuring or adverse changes to the franchise model.
Compensation must cover: Lost profit, unamortised investments, goodwill reduction, and winding-up costs.
Mandatory clause inclusion applies to agreements entered into, transferred, or renewed from 1 November 2025 but may apply earlier depending on drafting.
Return on Investment Obligations (Section 44)
Franchisees must have “reasonable opportunity” for ROI, however this does not mean guaranteeing profitability. Key considerations include:
Franchise type, costs, term, or capital requirements.
Franchisee sale price and franchisor's responsibility where ROI is at risk.
Mandatory clause inclusion applies from 1 November 2025 but may take effect earlier depending on clause wording.
Specific Purpose Marketing/Operational Funds (Sections 31 and 61)
By 1 November 2025:
All marketing, training, or operational funds must fall within "specific purpose funds."
Franchisors must maintain individual accounts, comply with enhanced reporting requirements, and provide franchisees with clear utilisation disclosures.
Strengthened Capital Investment Disclosures (Section 20)
Franchisors must outline mandatory franchisee capital investments in the disclosure document and discuss these potential investment requirements and the franchisees likely ROI before entering into any franchise agreement.
Examples of capital investments include: renovations, technology upgrades, and other significant expenses mandated by the franchisor.
Agreements should reflect these potential costs, with franchisors ensuring they have kept detailed file notes of relevant discussions with franchisees prior to entering into the franchise agreement.
Restraint of Trade Restrictions (Section 42)
Restraint of trade clauses may breach the updated Code unless agreements:
Provide for genuine compensation where franchisees meet renewal criteria and renewal is refused; or
Confirm the restraint of trade will not apply.
Franchisors need to review renewal/termination decisions and associated clauses.
Administrative and Procedural Updates
Various changes have been made, however, areas of particular note include:
Key Facts Sheet removed (specific transitional details pending).
Cooling-off waiver allowed for networked franchisees meeting specific conditions.
Disclosure exemptions for existing franchisees within the same network in limited dealings.
Obligations to keep records for six years
Changes to Code drafting so that “clauses” are now replaced with “sections” and various numbering is different, so franchise documents need to be updated to reflect the new wording or changed numbering that now applies.
Dispute Resolution (Section 78)
The Ombudsman may publicise refusals to participate in ADR, so franchisors should establish compliant complaint-handling processes per Sections 70-80 to reduce risk.
Key Immediate and Long-Term Compliance Steps
Update franchise agreements terms to reflect Code changes – Deadline effective for all new, renewed, or extended agreements from 1 April 2025.
Revise disclosure documents - Ensure compliance with updated provisions by 1 November 2025. (Saying this, there are some transitional concerns in how the government has currently drafted this delayed start and if you are changing terms in the Franchise Agreement, then consideration may be required as to additional item 22 updates that the disclosure document may need to include in any event)
Implement specific purpose fund accounting rules - Financial records must comply by 1 November 2025.
Provide notice regarding end-of-term decisions - Deadlines vary depending on the length of the franchise agreement.
Update Franchise Disclosure Register annually - First submission required by 14 May 2026 for the preceding financial year.
Franchisors must promptly educate and update their team, internal systems, processes and policies, as well as undertake changes to their Franchise Agreement and Disclosure document to ensure compliance with the new changes and avoid exposure to the large penalties under the updated Code.
Should you require assistance with understanding the impact of this new Code, team training, and/or drafting updated agreements, disclosure documents or systems, please do not hesitate to contact us, time is running out.
Please note that this is a general and brief update, it does not purport to be comprehensive legal advice of all information and/or relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action with respect to this area.a