What is a franchise agreement

The clauses that decide whether the deal is workable

1. Term and renewal. How long, and what happens at the end. Look for whether renewal is a right or a discretion, what conditions attach, whether a renewal fee is payable, whether you must sign the then-current agreement on different terms, and whether a refit is required as a condition of renewal.
2. Territory. Exclusive, non-exclusive, or a marketing area with no protection at all. Check whether the franchisor may open corporate outlets, sell online into your area, or supply national accounts within your territory. This is the clause franchisees most often misunderstand.
3. Fees. Initial fee, ongoing royalty and its base, marketing levy, technology and other specific purpose fund contributions, transfer and renewal fees, and whether any of them can be increased unilaterally.
4. Supply. Whether you must buy from nominated suppliers, whether the franchisor or its associates receive rebates on those purchases, and whether you may source elsewhere on approval.
5. Capital expenditure. What refits, equipment and technology upgrades you can be required to fund, and when. Significant capital expenditure must be disclosed with its rationale, amount, timing, expected outcomes and risks.
6. Transfer. How you sell the business, what consent is required, what fees apply, whether the franchisor has a right of first refusal, and whether the buyer must sign the current agreement rather than yours.
7. Termination. The breach process, the particular grounds on which the franchisor can act quickly, and what happens to the site, the equipment, the phone number and the customer data at the end.
8. Restraint of trade. What you cannot do after the agreement ends. Since 1 April 2025, a post-expiry restraint is unenforceable in defined circumstances where you sought renewal on substantially the same terms, met the conditions, were refused, and were not paid genuine compensation for goodwill.

What sits outside the agreement but binds you anyway

Franchisees routinely sign three or four documents on the same day and only read one of them.

• The operations manual. Usually incorporated by reference, usually able to be amended by the franchisor at will, and usually the practical source of your day to day obligations. Ask to read the current version before you sign.
• A personal guarantee. If you are franchising through a company, expect to be asked to guarantee its obligations personally. This is the document that puts your house behind the business. Understand whether it is capped and whether it survives a transfer.
• The lease or occupancy licence. Some systems hold the head lease and grant you a licence to occupy, which means your tenure ends when the franchise does. Others require you to take the lease directly and give the franchisor a right to step in.
• Confidentiality and restraint deeds signed by you and sometimes by your spouse.
• Supplier and equipment finance agreements arranged through the franchisor, which have their own terms and their own guarantees.

What you cannot be asked to agree to

A franchise agreement is a standard form contract and, where the franchisee is a small business, the unfair contract terms regime in the Australian Consumer Law applies. Since 9 November 2023 proposing, applying or relying on an unfair term is a contravention attracting civil penalties, not merely a basis for voiding the clause. The ACCC has specifically warned franchisors about unilateral variation rights, one-sided termination rights and indemnities that run only one way.

The Code also imposes limits. A franchisor cannot require a franchisee to pay the franchisor's legal costs of settling a dispute, and cannot require disputes to be resolved outside the state or territory where the franchisee's business is based. Both parties are subject to an obligation to act in good faith, which cannot be excluded, although it does not prevent a party acting in its own legitimate commercial interests.

And a franchisor cannot lawfully shorten your protections by drafting. The 14 day disclosure period and the 14 day cooling-off period come from the Code. A clause purporting to waive them, outside the narrow renewal opt-out that applies from 1 November 2025, does not work.

How to read one properly

Read it against the way you actually intend to operate, not as a legal document in the abstract.

Write down the ten things that would ruin the deal for you. A competing outlet two suburbs away. A required refit in year four. Being unable to sell to the buyer you have in mind. A supply arrangement that costs more than the open market. Then find the clause that deals with each of them, and if there is no clause, that is your answer: the franchisor can do it.

Then cross-check the agreement against the disclosure document. They should tell the same story about fees, territory, supply and capital expenditure. Where they differ, ask why in writing, and keep the answer.

Finally, use the 14 days. The Code gives you at least 14 days with the documents before you can sign, and the period exists precisely so you can take advice. See the disclosure document and buying your first franchise.