The Australian Competition and Consumer Commission has released guidance on the changes to the Franchising Code due to come into effect on 1 November 2025.
Two elements of the revised Code had caused concern among the franchise industry: compensation for early termination, and a reasonable opportunity to make a return on investment.
Compensation for early termination
The ACCC has provided three instances in which a franchisor would have to compensate a franchisee for early termination:
- if the franchisor withdraws from the Australian market
- if the franchisor rationalises its networks in Australia
- if the franchisor changes its distribution models in Australia.
According to the ACCC, franchisors need to specify in their franchise agreement how such compensation is to be calculated, taking into account the projected loss of revenue and profit, unamortised capital expenditure required by the franchisor, the loss of opportunity to sell goodwill, and the costs of winding up the business.
The Code also requires also the requirement for a buy-back provision or compensation for relevant stock, equipment or branded merchandise.
Reasonable opportunity to make a return on investment
The ACCC has shone some light on the contentious reasonable opportunity clause, pointing out that a reasonable opportunity is neither a guarantee of profitability or success, nor is it a risk-free venture.
What franchisors must do is provide franchisees with a reasonable opportunity to ‘recoup any required capital investment’ during the life of an agreement.
This means franchisors need to ensure an appropriate capital investment for the length of the agreement.
The ACCC suggests franchisors ensure the business model can deliver a profit, avoid tight margins, provide evidence-based financial data to franchise buyers, have clear franchisee selection criteria that ensure franchisees have the skills, and training, to ‘have a chance of success’ and alert franchise buyers to any matters that are not usual business practices within the sector.
The website has further details and case studies on this.
Check the ACCC website for further changes to the Code, including:
