Franchising is one of the most popular ways to expand a business in Australia. It allows entrepreneurs to run a business under an established brand with proven systems, support, and customer recognition. But before you sign on the dotted line, it’s essential to understand what a franchise agreement is and what it legally requires.
In this article, our franchising and contract lawyers break down what a franchise agreement is, key terms you need to know, the rights and responsibilities of both parties, and why getting legal advice is vital.
Key Takeaways
A franchise agreement is a legally binding contract between a franchisor and franchisee.
It allows the franchisee to operate a business under the franchisor’s brand and systems.
The ACCC regulates the Franchising Code of Conduct in Australia.
Key responsibilities and expectations are clearly defined in the agreement.
What is a Franchise?
A franchise is a business model where the franchisor allows another party (the franchisee) to operate a business using their name, systems, and support. It’s like renting a well-established business concept.
The franchisee sells the same products or services, under the franchisor’s brand, for a set period – usually with access to training, marketing support, and operations guidance.
Franchisor vs Franchisee: Who’s Who?
Franchisor: The original owner of the brand and business systems.
Franchisee: A person or entity licensed to operate the business under the franchisor’s brand.
What is a Franchise Agreement?
A franchise agreement is a contract between the franchisor and the franchisee. It sets out the terms and conditions for the operation of the franchise business.
In Australia, franchise agreements are regulated by the Franchising Code of Conduct. The Franchising Code looks at four main criteria to determine whether an agreement is a franchise agreement:
- the presence of an agreement between the parties,
- the franchisee’s right to operate a business according to a set system or plan,
- the close connection to a trademark, advertisement, or symbol owned by the franchisor, and
- the payment of money from the franchisee to the franchisor or a person associated with the franchisor.
For a deeper dive into how to set up and manage a franchise effectively, read our Guide for Successful Franchise Agreements.
Examples of Popular Franchise Businesses
- Jollibee
- McDonald’s
- 7-Eleven
- Kentucky Fried Chicken (KFC)
- TokTok
- Body Fit Training
Responsibilities in a Franchise Agreement
Franchisor Responsibilities
In a franchise agreement, the franchisor – the original owner of the business – has duties to help the franchisee succeed. These duties include:
- Training: The franchisor must train the franchisee. This involves learning how to run the business, how to serve customers well, and how to apply the special methods unique to the franchise.
- Advertising and sales promotion: The franchisor takes care of advertising and promoting the brand. This can include large campaigns to make more people aware of the franchise.
- Support: The franchisor also offers ongoing support to the franchisee. They offer advice, guidance, and help with any problems that arise during the day-to-day running of the business.
Put simply, the franchisor’s role is to make sure that the franchisee has all the tools they need to run their business successfully.
Stay compliant with the New Franchising Code of Conduct Rules 2025 to ensure your franchise complies with the latest legal requirements in Australia.
Franchisee Responsibilities
On the other side of the agreement, the franchisee, who runs the business under the franchisor’s brand, also has responsibilities:
- Services: The franchisee must provide the services listed in the agreement. This means that it must deliver products, services, or experiences in accordance with the franchisor’s standards.
- Methods: Following the methods specified by the franchisor is important. The franchisee must run the business according to these specified methods to keep things consistent across all franchise locations.
- Manuals: Franchise manuals act as a guide for the franchisee. The agreement states that the franchisee must follow the instructions and guidelines in these manuals. These manuals cover different parts of business management.
- Standards: Maintaining certain standards is a big task. Whether it’s the quality of the products, how customers are treated or how clean the place is, the franchisee has to meet the standards set by the franchisor.
- Business Promotion: The franchisee helps to promote the business in their area. This may mean doing local marketing to attract more customers and publicise the business in the community.
Simply put, the franchisee’s job is to run the business well according to the franchisor’s rules and standards.
For official guidance on recent changes and obligations under the Franchising Code of Conduct, visit the ACCC’s guidance on beginning a franchise agreement.
Key Components of a Franchise Agreement
A well-drafted franchise agreement includes:
Right to Use Brand: Permission to use the franchisor’s name/logo.
Operating Dates & Territory: Clear start dates and business location boundaries.
Fees and Costs: Initial franchise fee, ongoing royalties, and other expenses.
Advertising Requirements: National and local marketing duties.
IP Protection: Safeguarding brand identity, designs, and trademarks.
Terms and Renewal: Franchise period, renewal rights, and termination clauses.
Support and Training: Level of assistance provided by the franchisor.
Quality Control: Maintaining consistent standards across franchises.
Exit Strategy: How to transfer, sell, or terminate the franchise.
Dispute Resolution: How conflicts will be handled (e.g. mediation, arbitration).
Non-Compete Clauses: Preventing the franchisee from starting a similar business.
Insurance Requirements: Coverage needed to operate the franchise.
Frequently Asked Questions
Is a franchise agreement a legal requirement?
Yes, every franchisor must provide a franchise agreement to potential franchisees. The franchisor and you have a contract, which the Franchising Code of Conduct regulates.
What are the types of franchise agreements in Australia?
There are a few types:
- Business format franchise: You run a business under the franchisor’s brand.
- Product distribution franchise: You sell the franchisor’s products using your own brand.
- Management franchise: You manage the franchisor’s business.
- Area development franchise: You have exclusive rights to open franchises in a specific area.
Can you break a franchise agreement?
Yes, technically, but it’s not easy. There are consequences:
- Termination Clauses: The agreement usually has rules for ending it. Breaking these rules could lead to legal trouble.
- Compensation: Even if you end it right, you might still have to pay fees or lose future profits.
- Legal Problems: Breaking the agreement without good reason could lead to lawsuits and harm your reputation.
- Alternatives: You can talk to the franchisor about ending the agreement in a way that works for both of you. Or, you can get advice from a franchise lawyer.
Do franchise agreements expire?
Yes, most have a set time, usually 5 to 15 years. When it ends, you may be able to:
- Renew: Negotiate new terms to keep running the franchise.
- Not renew: Stop running the franchise and return anything you need to.
Do franchises need to be registered in Australia?
Yes, franchisors must create a profile and share info about their franchise on the Franchise Disclosure Register. It’s part of following the Franchising Code of Conduct.
Before signing a franchise agreement, you should get legal advice from a qualified Australian business lawyer. Franchise agreements are complex and carry long-term financial and legal commitments.
