Clock’s Ticking: Getting Ready for the Changes to the Franchising Code

Change is now part of the franchising landscape. The new Franchising Code of Conduct came into force on 1 April 2025, but several of the reforms that materially affect the commercial practice and documentation only apply from 1 November 2025. These are not technical niceties, rather they change how franchisors structure agreements, manage funds, support resales and, ultimately, how they manage their networks. The Code uses mandatory language, such as “a franchisor must not enter into a franchise agreement unless…”. Consequently, the onus is on franchisors to make sure their franchise documentation and disclosure process reflect the new obligations before the upcoming deadline. We set out these new obligations below.

 

Compensation for Early Termination

From 1 November 2025, the Code requires that all franchise agreements provide for compensation where the franchisor ends the agreement early because it withdraws from the Australian market, rationalises its networks, or changes its distribution models. The requirement is prescriptive, meaning that a franchise agreement must specify how compensation is to be determined. The Code lists the following particular factors that must be addressed: 

1. lost profit (direct and indirect);
2. unamortised capital expenditure requested by the franchisor;
3. loss of opportunity to sell established goodwill; and
4. costs of winding up the franchised business.

The franchise agreement must also contain buy-back or compensation arrangements for outstanding stock and essential speciality equipment that cannot be repurposed. In short, this is now a mandatory, contract-level obligation and not a discretionary commercial concession. 

This changes both the drafting of the franchise agreement and network planning. Pragmatically, a satisfactory and defensible compensation clause will do more than recite the factors in the Code, taking into consideration the particular nature of the franchise. Examples of sensible drafting choices include a two-stage approach:

• first, an agreed method for quantifiable items (for example, unamortised capital expenditure calculated by reference to a specified depreciation schedule); and
• second, a process for valuing goodwill and indirect losses that uses either an independent valuation or a pre-agreed mechanism. 

Franchisors need to consider these issues and how best to incorporate drafting that complies with the Code, but gives the franchisors certainty as to the process they must follow if the clause is triggered.

 

Reasonable Opportunity for Return on Franchisee’s Investment

The Code extends the long-standing principle that franchisees should be given a reasonable opportunity to recoup their investment in the franchise. In this regard, the Code requires that a franchisor must not enter into a franchise agreement unless that agreement provides the franchisee with a reasonable opportunity to make a return, during the term of the franchise agreement, on any investment required by the franchisor as part of entering into, or under, the franchise agreement.

In practice this means franchisors must be able to show, if challenged, that the term and commercial model of the franchise reasonably align with the scale and timing of the capital and working capital the franchisor requires from the franchisee.  

This goes directly to the commercial heart of franchising. Franchisors will need to demonstrate that they have considered the relationship between the level of investment required and the length of the franchise term. This will have obvious consequences for renewal structures and for the resale market, as prospective buyers will be scrutinising whether the term on offer realistically support a return on capital. A well-advised franchisor will want to approach this not as a box-ticking exercise, but as part of a broader strategy to ensure the sustainability of their network. We anticipate this is something that franchisees will use as a negotiation point in the future, so we recommend that Franchisors pay appropriate attention to it before 1 November.

 

Specific Purpose Funds 

The Code expands the concept of marketing/cooperative funds into the broader category of specific purpose funds, being any fund controlled or administered by the franchisor to which a franchisee must contribute and that must be used for a specified common purpose. 

From 1 November 2025, franchisors must prepare annual financial statements for each specific purpose fund within four months of financial year-end, provide those statements to contributing franchisees, and have them audited unless a sufficient proportion of contributing franchisees vote otherwise. Funds must be operated transparently and held in separate bank accounts. The disclosure document will also need to reflect all specific purpose funds (Item 15), not just marketing funds. 

Operationally, that means systems change, bookkeeping and reporting processes must distinguish each fund. If you run multiple funds or indirect pooled arrangements, now is the time to map them and decide which fall within the Code’s definition.  

 

Deadlines You Must Not Miss - Disclosure Document Updates and the Franchise Disclosure Register

Timing matters. The Code requires franchisors to update their disclosure documents within four months of the end of their financial year. For franchisors whose financial year runs from 1 July to 30 June, that means disclosure documents for the year ending 30 June 2025 must be updated by 31 October 2025. In addition, franchisors must confirm or update their franchise profile on the Franchise Disclosure Register by the 14th day of the fifth month after the end of their financial year (which, for a 30 June year-end, falls on 14 November). Those are statutory calendar deadlines. So plan your audit, board approvals and disclosure drafting. 

 

How We Can Help 

Good compliance is not an exercise in defensive drafting; it is an opportunity to sharpen the commercial architecture of your network. As specialist franchising lawyers we can do more than update clauses to mirror the Code. We work with you to understand your commercial practices and objectives and in turn assist convert obligations into practicable processes, and update documentation to suit your franchise network, while being compliant. 

We have been following these reforms closely and advising our clients on the steps required to transition smoothly. We assist franchisors not only in updating their franchise agreements and disclosure documents, but also in thinking strategically about investment structures, resale planning, network rationalisation, and fund management in light of the new Code.

The clock is ticking, and 1 November 2025 will be here before you know it. If you have not yet started preparing for these changes, now is the time. 

Contact our Corporate Advisory team to ensure that your documentation and your processes are ready for the new landscape.