A Franchise Agreement is a legally binding contract between a franchisor and a franchisee that governs the franchisee's right to operate a business using the franchisor's brand, system, intellectual property, and operational methods. In Australia, franchise agreements are subject to some of the most comprehensive franchise-specific regulation in the world, primarily through the Franchising Code of Conduct, which is a mandatory industry code prescribed under the Competition and Consumer Act 2010 (Cth).

The Franchising Code of Conduct (the Code) applies to all franchise agreements entered into in Australia, regardless of which state or territory the parties are located in. The Code is administered by the Australian Competition and Consumer Commission (ACCC) and imposes significant obligations on both franchisors and franchisees. The ACCC has broad enforcement powers, including the ability to seek injunctions, civil penalties, and other remedies for breaches of the Code.

Key obligations under the Code include the requirement for the franchisor to provide a disclosure document to the prospective franchisee at least 14 days before the franchise agreement is signed. This disclosure document must contain prescribed information about the franchisor's business history, litigation history, financial position, details of existing and former franchisees, all fees payable, intellectual property, supply arrangements, and the terms of the franchise agreement. The prospective franchisee also has a 7-day cooling-off period after signing the franchise agreement during which they may withdraw without penalty.

A well-drafted Australian Franchise Agreement must comply with the Code and reflect the commercial reality of the franchise relationship, including the grant of the franchise, the territory, the term and renewal rights, all fees payable (initial franchise fee, royalties, and marketing fund contributions), training obligations, operational standards, intellectual property licence, dispute resolution, and termination provisions.

This template is designed for use in all Australian states and territories, including New South Wales, Victoria, Queensland, Western Australia, South Australia, Tasmania, the Australian Capital Territory, and the Northern Territory.

A Franchise Agreement is required whenever a franchisor grants a franchisee the right to operate a business under the franchisor's system and brand in Australia. Both existing franchise systems entering into agreements with new franchisees and new franchise systems establishing their first franchisee relationships require a comprehensive, Code-compliant franchise agreement.

You need a Franchise Agreement when you are: establishing a new franchisee relationship for the first time; renewing or replacing an existing franchise agreement at the end of its term; granting a master franchise or sub-franchise arrangement; converting an existing business owner to a franchisee of your system; or acquiring an existing franchise from a departing franchisee.

For franchisors, the Franchise Agreement is the foundation of the franchise relationship. It must be drafted carefully to protect the intellectual property and goodwill of the system, ensure consistent standards across the network, establish clear fee collection mechanisms, and provide appropriate mechanisms for dealing with underperforming or non-compliant franchisees.

For franchisees, the Franchise Agreement defines the rights and obligations of the franchise relationship and should be read carefully before signing. The Code gives franchisees important protections, including the right to a disclosure document, the cooling-off period, and the right to have disputes resolved through mediation. Prospective franchisees are strongly encouraged to obtain independent legal and financial advice before entering into any franchise agreement.

Franchisors should also be aware that the ACCC actively monitors compliance with the Code and can issue infringement notices, seek injunctions, and impose civil penalties for breaches. The ACCC has published updated guidance on the Code and conducts regular reviews of the franchise sector.

A comprehensive Australian Franchise Agreement must include several essential elements to comply with the Franchising Code of Conduct and adequately protect both parties.

The grant of franchise clause defines the nature and scope of the licence being granted — the right to use the system, trade marks, and know-how to operate the franchised business within the specified territory. The grant should specify whether the territory is exclusive or non-exclusive, and what activities are permitted or prohibited within the territory.

The term and renewal provisions set out the duration of the initial franchise period and any renewal rights available to the franchisee. The Code requires specific provisions dealing with the notification period for renewal and the terms on which renewal may be exercised. Franchisors should note that they have obligations under the Code in relation to non-renewal of franchise agreements, including notice requirements.

The fees clause must clearly set out all fees payable by the franchisee, including the initial franchise fee, ongoing royalties, and marketing fund contributions. These fees must be consistent with those disclosed in the disclosure document. The Code requires franchisors to maintain marketing funds on trust and provide annual audited statements of marketing fund receipts and expenditures to franchisees.

The cooling-off clause must reflect the requirements of clause 6B of the Code, giving the franchisee 7 days from the date of the agreement to withdraw. This right cannot be waived and must be clearly disclosed to prospective franchisees.

The dispute resolution clause must include the mandatory dispute resolution procedure prescribed by Part 4 of the Code, including the notification, negotiation, and mediation steps. Franchisors cannot exclude or modify the Code's dispute resolution requirements.

The termination clause must comply with the Code's requirements regarding notice of breach and opportunity to remedy, and immediate termination rights are limited to the specific circumstances set out in the Code.