Understanding the Franchising Code of Conduct

What Is the Franchising Code of Conduct?

The Franchising Code of Conduct is a mandatory industry code prescribed under the Competition and Consumer Act 2010 (Cth) and administered by the Australian Competition and Consumer Commission. It sets out the legal rules that apply to parties entering into, operating under and exiting a franchise agreement in Australia.

The Code covers a wide range of matters, including:

• disclosure obligations before entering the agreement;
• the form and content of the franchise agreement;
• good faith obligations;
• cooling-off and termination rights;
• marketing and other cooperative funds;
• renewal, transfer and end-of-term arrangements; and
• dispute resolution.

Who Must Comply?

The Code applies to all parties to a franchise agreement caught by the Code's definition of a franchise — most commonly the franchisor, the franchisee and any guarantors. Whether a particular arrangement is a franchise (as opposed to a licence, distribution agreement or agency) is a question of substance, not the label the parties have chosen.

If in doubt, obtain legal advice on whether your arrangement is caught before you proceed.

Disclosure Requirements

Before a prospective franchisee signs an agreement or pays any non-refundable money, the franchisor must give the franchisee a disclosure document, the proposed franchise agreement and a copy of the Code itself. Disclosure must be made at least 14 days before any of these triggers.

The disclosure document covers matters such as:

• the franchisor's business experience and key personnel;
• existing franchisees and recent terminations;
• establishment and ongoing costs;
• marketing fund contributions and reporting;
• supply restrictions and rebates;
• intellectual property and trade marks;
• litigation and past disputes; and
• financial details and solvency.

The franchisee must give signed statements acknowledging that they have received the disclosure document and have had a reasonable opportunity to obtain independent legal, accounting and business advice.

Franchise Agreements

The franchise agreement is the central commercial document. It typically deals with the term, renewal, territory, fees, supply arrangements, training, operations, intellectual property, restraints, transfer and termination. The Code imposes specific limits on what can and cannot be included — for example, around releases, restraints, jurisdiction clauses and significant capital expenditure.

The combination of franchise agreement, disclosure document, operations manual, lease and personal guarantees can amount to a very substantial long-term commitment. It should never be signed without specialist legal review.

Good Faith Obligations

Both parties must act towards each other in good faith. Good faith includes acting honestly, not arbitrarily, and having regard to the other party's legitimate commercial interests. The duty applies throughout the relationship — from pre-contract negotiations to termination and beyond.

Good faith does not stop a party from acting in its own commercial interests, but it shapes how those interests are pursued — for example, when withholding consent, exercising discretion or enforcing rights.

Cooling-Off Rights

Franchisees have a cooling-off period during which they can terminate a new franchise agreement, or one that has been extended or transferred, by written notice. Where this right is exercised, the franchisor must repay specified amounts, although certain reasonable expenses may be deducted.

The cooling-off period operates to strict deadlines. Anyone considering exercising the right should obtain advice immediately, not days later.

Dispute Resolution Under the Code

The Code provides a structured dispute resolution process:

• the party in dispute gives written notice describing the dispute, the outcome sought and what action would settle it;
• the parties attempt in good faith to resolve the dispute;
• if unresolved, the matter may be referred to mediation or conciliation, typically through the Australian Small Business and Family Enterprise Ombudsman; and
• court proceedings remain available, but the parties are generally expected to attempt the Code's process first.

Common Risks for Franchisees

• Signing before disclosure has been properly considered or independent advice obtained.
• Relying on verbal forecasts of turnover or profit not reflected in the disclosure document.
• Underestimating ongoing fees, marketing fund contributions, refurbishment and renewal costs.
• Personal guarantees and lease commitments that survive the end of the franchise.
• Restraint of trade clauses that limit what you can do after exit.
• Inadequate exit and transfer planning, particularly where there is no clear succession or buyer.

Common Risks for Franchisors

• Disclosure documents that are out of date, incomplete or inconsistent with the agreement.
• Marketing fund administration and reporting failures.
• Termination, renewal or transfer decisions made without careful regard to the Code.
• Inadequate written records of consent, variations and disputes.
• Conduct in negotiations or enforcement that exposes the franchisor to good-faith or unconscionable conduct claims.
• Insufficient legal review when systems, products or supply chains change materially.

Why Legal Advice Is Important Before Signing

A franchise agreement is often the largest single commercial commitment a small-business owner ever makes. Equally, for a franchisor, the network is only as robust as the agreements and disclosure underpinning it. Getting the legal foundations right at the start is materially cheaper than fixing them under dispute.

Parke Lawyers advises both franchisees and franchisors across Victoria — from reviewing disclosure and agreements before signing, to advising on renewals, transfers, exits and disputes. See our Commercial & Business Law service for the broader practice, and our companion article on business succession planning for how a franchise interest sits within a wider succession strategy.

Frequently Asked Questions