Key changes: Franchising code updates

Significant changes are on the horizon for Australia’s franchising sector. The Treasury has published the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (New Code), which will replace the current Franchising Code of Conduct. The New Code took effect on 1 April 2025, with additional obligations commencing on 1 November 2025. These changes introduce new rights and obligations for both franchisors and franchisees. Below, we summarise the key reforms and their implications. 

Key Changes to the Code 

The New Code formally states its purpose as addressing the power imbalance between franchisors and franchisees and promoting higher standards of conduct to reduce disputes. 

	Compliance timeline
Key date	Obligation
1 April 2025	The New Code comes into force. Certain obligations (e.g. opt-out provisions, reasonable return on investment, early termination compensation) become mandatory for new, renewed, extended or transferred agreements.
1 April – 31 October 2025	Transition period for compliance with some obligations. Franchisors must begin aligning agreements and processes accordingly.
1 November 2025	Full compliance required. Additional obligations (e.g., new disclosure requirements for capital expenditure and fund contributions) take effect.

Reasonable Opportunity to Make Return on Required Investment (Section 44) 

One of the most significant changes of the New Code is the extension of section 44. Under this provision, all franchise agreements must give franchisees a reasonable opportunity to earn a return on any investment required by the franchisor. Previously limited to New vehicle dealership agreements, this change will now apply to all franchising agreements. Importantly, it should be noted that franchisors are not required to guarantee profits or business success but must provide a framework that supports a reasonable return over the life of the agreement. 

However, this reform raises several practical concerns: 

• Applicability across diverse business models: The Franchise Council of Australia has warned that the extension may not account for the fundamental differences between vehicle dealerships and other franchises. 

• Definition of 'required investment': Many investments, such as fit-outs mandated by landlords, are indirectly required by the franchisor—are these included? 

• Lack of clarity on what qualifies as a ‘reasonable return’: Will minimal profit margins (e.g., 1%) satisfy the requirement? 

Interpretation and enforcement of section 44 remain uncertain and may be subject to judicial clarification. 

Compensation for Early Termination (Section 43) 

Another major development is the expansion of compensation requirements for early termination. Previously exclusive to new vehicle dealership agreements, this obligation will now apply to all franchise agreements. 

Under section 43(2)(a), franchisors are required to provide compensation in instances where they withdraw from the Australian market, rationalise their Australian network, or modify their distribution model. Additionally, section 43(4) imposes an obligation on franchisors to buy back outstanding stock and essential equipment or branded products that cannot be repurposed. These requirements may expose franchisors to considerable financial risks, particularly in cases where disputes arise regarding the valuation of stock or equipment. 

Other Notable Amendments 

• Franchisees can now opt out of receiving disclosure documents and the 14-day cooling-off period, giving more flexibility to experienced franchisees. 

• Termination without ADR: If a serious breach is formally found, franchisors may terminate the agreement with 7 days' notice, without engaging in dispute resolution. 

• Naming and shaming non-compliant franchisors: The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) can now publicly name franchisors that fail to participate meaningfully in dispute resolution processes. 

• Increased penalties: Breaches of substantive obligations now attract penalties up to 600 penalty units—equivalent to $198,000 at the time of this article ($330 per unit). 

  
  

What This Means for Franchisors and Franchisees 

Franchisors must carefully review and, where necessary, redraft franchise agreements to comply with the New Code by 1 April 2025. This includes: 

• Ensuring agreements provide a reasonable return on required investment, 

• Including clauses that deal with early termination compensation, 

• Avoiding prohibited restraint of trade clauses post-expiry, 

• Updating disclosure documents to align with new requirements. 

Franchisees should understand their new rights, especially around early termination and return on investment. 

FAQs 

• Franchise agreements signed before 1 April 2025: These do not need to be updated, unless renewed, extended, or transferred after that date. 

• Disclosure documents for potential franchisees after 1 April 2025 must comply with the New Code—even if based on agreements signed earlier. 

• Franchisors may maintain a single updated disclosure document to comply with the New Code, rather than managing dual versions. 

  
  

How Gibson MacNeill Lawyers Can Help 

The 2024 Regulations mark the most substantial changes to franchising law in recent years. While the reforms aim to increase fairness and accountability, they also introduce new legal and financial risks for franchisors. Franchisors are strongly encouraged to seek legal advice to ensure compliance, Gibson MacNeill Lawyers offers expert legal support in reviewing and updating franchising agreements to ensure continued compliance with regulatory guidelines.  

Contact us to discuss how we can assist in future-proofing your franchising agreements.