The ultimate franchisee legal rights guide

The ultimate franchisee legal rights guide: your 13 legal rights that you need to know right now

The ultimate franchisee legal rights guide: your 13 legal rights that you need to know right now

Updated: 8 December 2019

If you own a franchise, read on to find out your 13 legal rights that have and need to know right now.

And you are just thinking about purchasing a franchise but have not yet purchased, you may wish to read our 6 best in-depth legal tips to help prepare you for owning your first franchise.

In a hurry? Jump ahead.

It is a good idea to read the franchising code if you need more detail.

Also, while we  focus on franchising code rights for franchisees in this article, you also have responsibilities under the same code. 

So what exactly is the franchising code?

The franchising code applies to all the parties to a franchise agreement and it's legally binding.

Now, your rights under the code are in addition to your rights under Australian consumer and competition laws.

Also, the code is mandatory and breaches attract civil penalties.

And no, the franchisor cannot opt out of the code.

1. Disclosure

Information statement

First, you will get an information statement from the franchisor when you enter into an agreement for the first time. Here's what it looks like.

And, the risks and rewards of franchising are also included in the information statement. 

Disclosure document

The franchisor must also give you a  disclosure document as a prospective franchisee.

Your disclosure document needs to be in a certain format.

So here is what the disclosure should look like - Australian Consumer and competition disclosure document template

And a director,  officer or agent of the franchisor must sign it. 

Also, the franchisor must update the disclosure document within 4 months after the end of each financial year. 

However, the franchisor does not have to give you a disclosure document in these instances:

  • if they only take on  1 or no new franchisee's in the past year; and 
  • don't intend on taking on any more in the following year.

Documents the franchisor needs to give you

The franchisor must give you these documents:

  • the franchise code; and
  • information statement; and
  • disclosure document; and
  • franchise agreement, at least 14 days before you:
    •  enter into the agreement; or 
    •  make a non-refundable a payment to the franchisor.

And, importantly, the franchisor cannot enter, renew or extend a franchise agreement with you if you have not given them a written statement that you have received and understand the disclosure document and franchising code.

2. Copy of agreements


In addition to the agreements above, if you are also leasing from the franchisor, they must give you a copy of the signed lease within a month.

Also, here are other agreements you can get copies of

  • intellectual property agreements; and
  • security agreements including a guarantee,  mortgage or  loan agreement; and
  • confidentiality agreement; and 
  • restraint agreement - so you do not to carry on business within a certain area after your agreement ends.

Copy of financial statements

In addition to the agreements above, if your franchise agreement states that you must pay money to a marketing or another fund,  you have the right to receive an annual financial statement. 

And that statement should detail the receipts and expenses for the last financial year. 

Also, here are some of your other statement rights: 

  • you must receive the statement within 4 months after the end of the last financial year; and
  • there should be sufficient detail of the receipts and expenses; and
  •  the statement should be audited by a registered company auditor; and 
  •  you should receive the statement within 30 days of it being prepared. 

You need to know about material facts

The franchisor must tell you about any material facts that are not in your disclosure document, within 14 days of learning about them. 

And if you are wondering what is a material fact, here are some examples:

  • ownership - a change in majority ownership or control of the franchisor; and
  • legal cases - a criminal or civil judgement; and
  • intellectual property - change in ownership or control.

3. Your rights at the end of the agreement

Also, the franchisor must give you written notice if they plan to extend your agreement or enter into a new one with you. 

So how much notice should you receive? 

  • if your agreement is for 6 months or longer - at least 6 months before the end of your term; and 
  • if your agreement is for less than 6 months - at least 1 month before your agreement ends.

4. No release from liability

The franchisor cannot ask you to sign an agreement with either of these clauses:
  • general release - a general release of the franchisor's liability towards you;  or
  • waiver  - a waiver of any verbal or written representation made by the franchisor. 

And if you have either of these in your agreement,  they will have no effect.

5. Settling disputes & who pays

Any mediation or court action must occur in the  state or territory where the franchise is based. 

So if there's a clause that says otherwise, it won't have any effect.

Also, your mediation costs are split with the franchisor and if your agreement requires you to pay, that clause will have no effect.

6. Restraint of trade clauses 

What's the purpose of a restraint? A restraint protects the interests of the franchisor. 

How? By stopping you from running a competing business for a certain time during and after your agreement ends.

However, the good news is you won't be bound by a restraint in your franchise agreement if you have given notice seeking to extend your agreement on similar terms to the current agreement, and these conditions are met:

  •  you were not in breach of the agreement; and 
  •  there are no breaches of intellectual property or confidentiality agreements during the term; and 
  • you have not received compensation for goodwill because the agreement has not been extended.

7. Transferring your agreement

The franchisor must respond to you in writing about whether they agree to a franchise transfer. 

But, if the franchisor does not consent,  they need to give you their reasons.  

Now, if the franchisor does consent,  they need to tell you whether any conditions need to be met. 

Importantly, a franchisor must not unreasonably withhold their consent. 

And a franchisor may only be able to reasonably withhold consent in these instances:

  • finances - if it is unlikely the buyer will be able to meet their financial obligations under the franchisee agreement; or
  • reasonable requirement - if the buyer does not meet a reasonable requirement in the agreement for the transfer; or
  • selection criteria - if the buyer fails to meet the selection criteria; or
  • no agreement - if the buyer does not agree, in writing, to comply with their franchisee obligations; or
  • statement - if the buyer has  has not given a written statement that they received, read and had a reasonable chance to understand the disclosure document and the franchising code. 

Also, consent can be reasonably withheld if you have not:

  •  paid or made arrangements to pay an amount owing to the franchisor; or
  •  fixed a breach of your agreement.

Now, you will have consent if the franchisor does not advise you in writing,  that they do not consent to the transfer of the agreement within 42 days of the latter of: 

  • the  date the request was made; and
  • if the franchisor seeks further information -  the date the last of the information was given to the franchisor. 

8. Ending your agreement

Cooling off period

The cooling off period means you may end your franchise agreement within 7 days after the earlier of

  • you entering into the agreement;  and
  • you making any payment under the agreement.

Now, if you end the agreement during the cooling off period, the franchisor must, within 14 days, give you back all the money you paid the franchisor.

However, the franchisor may however deduct their reasonable expenses set out in the agreement.

Notice of termination 

If there is a termination because of your breach and the franchisor wants to end the agreement,  they must give you reasonable notice in writing.

And the franchisor needs to tell you about what you need to do to fix the breach and allow you a reasonable time to do this.

Also, you are entitled to reasonable notice if the franchisor wants to terminate and there is no breach.

9. No capital expenditure

A franchisor must not make you spend significant capital expenditure for a franchise business.

Capital nature expenses include ones that:

  • are outlined in the disclosure document that is given to you before either entering, renewing or extending the franchise agreement; and
  • paid by all or a majority of franchisees; and
  • are made to comply with legislative obligations; and
  • necessary as a capital investment to improve the business. 

10. Correct use of your marketing fees

You are entitled to have funds that you have paid into the marketing fees and advertising front used only to pay for expenses that: 

  • have been disclosed in the disclosure document; or
  • are legitimate advertising expenses; or
  • agreed by majority of franchisees; or
  • pay the reasonable cost of administering and auditing a marketing fund.

11. Your privacy

When your agreement ends, you can request in writing that your details are not disclosed.  In this case,  the franchisor must not disclose your details to a prospective franchisee. 

12. Associations

In addition to your privacy rights, a franchisor must not prevent your or a prospective franchisee's freedom to form an association,  or their ability to associate with other franchisees or prospective franchisees for a lawful purpose.

13. Disputes

In addition to your associations rights, you are entitled to dispute management processes per the procedure in the franchising code. 

If you wish to raise a dispute, you can send a written notice to the franchisor with the:

  • nature of the dispute; and
  • outcome you want; and
  • action you think will fix the dispute.

And if your dispute is not resolved within 3 weeks,  either party may refer it to a mediator.

Further, both parties must share mediation costs,  unless they agree otherwise.


Finally, you have rights and if you are unsure about anything, get legal advice quickly. In particular, if you have been issued with a dispute notice to avoid having to pay certain costs or penalties to the franchisor. 

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The 6 best legal tips to help prepare you for owning your first franchise

7 best legal tips to help you prepare for owning your first franchise

7 best legal tips to help you prepare for owning your first franchise

Updated: 6 December 2019 

If you're thinking about buying a franchise, read on for our 7 best legal tips to help prepare for owning a franchise. 

In a hurry? You can jump ahead below.

1. Franchising code of conduct

Your franchisor needs to comply with the Franchising Code of Conduct (franchising code). 

So what is it?

It's a legally binding industry code. It applies to all the parties to a franchise agreement. Here's a link to it.

2. Information statement

The franchisor should give you an information statement.

An information statement outlines the risks and rewards of franchising.

You get one when you enter into a franchise agreement for the first time (i.e. not for the renewal of your franchise agreement).

3. Disclosure document

A disclosure document describes the franchise system and running a franchise.

The franchisor needs to give you a disclosure document if you are proposing to enter into,  renew or extend a franchise agreement.

What's included?

  • any legal proceedings against the franchisor it's directors;
  •  contact details of current and former franchisees (unless the franchisee has requested that their details not be disclosed); and
  •  arrangements for when the franchise agreement ends (including renewal and extensions).


The disclosure document needs to be in the format set out in the franchising code.

Also, it needs to be signed by the franchisor,  or a director, officer or authorised agent of the franchisor.

Financial information

We strongly suggest that you have an accountant review the financials.

Cooling off period

If you change your mind,  you have a 7 day cooling off period after entering into the agreement or making any payment (whichever happens earlier).

The franchisor must refund all payments within 14 days but they may withhold their reasonable expenses.

4. When to see a lawyer

If you have chosen to get legal advice, it's a good idea to get legal advice once you receive the information statement. 

Some clients think they cannot negotiate much so there's not much point seeing a lawyer. 

This is not always the case.

Typical legal and accounting work

So how can a lawyer help you?

Risk advice: first, your lawyer may do some legal research on the franchisor and any existing legal cases against them.

Then your lawyer will be able to give you advice so you are aware of the risks.

Review work: your lawyer will also check your disclosure document to make sure that key terms have been included in the agreement. 

Franchise agreement negotiation: your lawyer can help you negotiate some of the terms.

Lease review & negotiation: finally, your lawyer can review your lease, advise you of any negative terms and help you negotiate better ones.

How about an accountant?

An accountant can help you review the franchisor's financials to give you comfort that finances are in order.

5. Items to prepare before executing the franchise agreement

Insurance:  the franchisor usually requires you to have public liability,  content,  professional indemnity and workers compensation insurance. 

It's a good idea to shop around. Brokers are a good place to start because you can compare a number of providers.

Bank guarantee: the franchisor may require you to provide a bank guarantee. 

Why?  In case you don't pay any of your  service fees,  the franchisor can then deduct  money owed to them from your bank guarantee. 

Leased premises: usually you will need to get permission from the franchisor for any premises that you choose.  Also, watch out for size restrictions.

The franchisor will want to see certificates of currency for your insurance before the settlement date of your agreement. 

Tip: don't leave these items until the last minute, it can be stressful for you and anyone helping you. 

6. Terms to watch out for in your franchise agreement

Be sure to look out for these terms in your franchise agreement: 

Legal fees:  usually each party pays their own legal fees.  

Some franchisor's require you to pay their legal fees as well as yours.  

You may be able to negotiate this point so that each party pays their own legal fees.

Interest:  watch out for high penalty interest on late payments, this is an item you can usually negotiate.

Franchisor competition:  also, be aware of clauses in your franchise agreement  that allow a franchisor  to compete extensively with  your franchise. 

Territory:  make sure that any territory boundaries are clearly defined.

Ideally,  you will have exclusive access to operate your franchise in a particular area.

Unpaid training -  finally, watch out for clauses that require you to provide unpaid training because this will take time away from your franchise.

7. Dispute resolution

Dispute resolution: resolving disputes is a huge deal, so it gets its own heading. 

Here's what needs to happen in the event of a dispute: 

Step one:  Inform the other party of the dispute

Inform the other party in writing of the dispute,  this is usually called the dispute notice

You must include the nature of the dispute, the outcome you want and action you think will settle the dispute. 

Step 2:   Resolving the dispute

The parties should agree about how to resolve the dispute.  

Step 3:  Mediate

If you cannot does resolve the dispute within a certain time frame,  either party may refer the matter to a mediator. 

Costs: each party should pay for their own cost of attending mediation, unless otherwise agreed.

Importantly, the franchising code allows either party to start legal action despite dispute resolution processes.

If you get a dispute notice, your focus should be to look at ways of resolving the dispute quickly. 

Here are the key ways a lawyer can help you:

  • a lawyer can give you advice about your rights; and 
  • a lawyer can  send a letter to the franchisor 
  • follow a dispute resolution process set out in the code.

The Australian Competition & Consumer Commission (ACCC) has some really good information for both franchisees and franchises.

You can read more in the franchisor compliance manual

Key points

So if you are thinking of entering a franchise, keep these key points in mind:

  • the franchising code of conduct applies to your franchise agreement.
  • the franchisor must give you an information and a disclosure document before you enter the agreement.
  •  you should see a lawyer once you receive the information statement.
  •  start shopping for insurance and a bank guarantee early and make sure your lease complies with the the agreement and that you are meeting any franchisor requirements for these items as well.
  • terms to watch out for in your agreement include: legal fees, interest, competition, territory, unpaid training and dispute resolution. 

You may have other terms that need to be checked and for this reason, the above points are a guide and not legal advice. 

Finally, negotiation early on usually works best before you sign anything! 

Do you have questions or comments about a franchise? Be sure to leave them below. 

I wish you success in your ventures!

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