New Franchising Code Obligations Start on 1 April 2025

New Franchising Code Obligations Start on 1 April 2025

Significant changes to Australia’s Franchising Code of Conduct will take effect from 1 April 2025, introducing new compliance requirements for franchisors. The Competition and Consumer (Industry Codes – Franchising) Regulations 2024 will impact franchise agreements, disclosure obligations, termination rights, and financial responsibilities.

Key Changes for Franchisors

• Return on Investment – Franchise agreements must ensure franchisees have a reasonable opportunity to recoup their investment within the agreement term.
• Compensation on Early Termination – If a franchisor exits the Australian market, restructures, or changes its distribution model, they must compensate franchisees for lost profits, capital expenditure, and goodwill.
• Restraint of Trade Restrictions – If a franchisee requests renewal and is not in serious breach, franchisors cannot enforce post-term non-compete clauses if they refuse renewal.
• Legal Cost Limits – Franchisors may only charge franchisees for reasonable and genuine legal costs associated with preparing and negotiating the agreement.
• Disclosure Changes – Enhanced disclosure requirements will apply, including details of any significant capital expenditure required from franchisees.
• Cooling-Off & Consideration Periods – A 14-day mandatory consideration period will apply before any franchise agreement can be signed, ensuring franchisees have time to review documentation.
• Common Purpose Funds – New financial reporting and payment requirements apply to marketing funds and other pooled contributions, expanding accountability.
• Limited Recourse to ADR – Franchisees will have reduced access to Alternative Dispute Resolution (ADR) in termination scenarios linked to insolvency or serious breaches.
• Increased Record-Keeping Obligations – Franchisors must maintain detailed records of key documents for at least six years.

 What Should Franchisors Do?

From 1 April 2025, renewed franchise agreements must comply with the new Code. While existing agreements may have some transitional flexibility, franchisors should review and update their contracts and processes immediately to avoid potential penalties of up to $198,000 per breach.

If you have any questions about the changes, please do not hesitate to contact me. I am here to help.