New Franchising Code provisions which come into effect from 1 November 2025.

As from 1 November 2025 all Franchise agreements must include a clause that gives the franchisee the right to seek compensation for early termination of their franchise (section 43 of the New Code).

This requirement only applies if a Franchise Agreement is terminated by the Franchisor prior to the term ending where:

• The franchisor withdraws from the Australian market;
• The franchisor rationalises its networks in Australia; or
• The franchisor changes its distribution model in Australia

(Early Termination Circumstances)

This requirement previously applied only to car dealership agreements, but from 1 November 2025, all franchise agreements will be caught by this obligation.

If any of the events above occur, the franchisor is required to buy back the franchise or compensate the franchisee for certain items (such as stock and speciality equipment specified by the franchisor).

We can assist you in drafting the necessary clause to comply with this obligation including the process for a franchisee to claim compensation.

Under section 44 of the New Code, franchisors must not offer a franchise unless the franchisee will have a ‘reasonable opportunity’ to make a return on investment during the term of the franchise.

This makes financial modelling even more important  for franchisors to ensure the franchise can be financially viable for the franchisee.

Franchisors should:

• Retain documents that show the franchise model works for the franchisee in case this is ever tested in court.
• Having franchisees formally acknowledge that the franchisor has not guaranteed a return on investment.
• Review and update the financial modelling having regard to changing economic and market conditions.
• Consider the term they are offering franchisees, for example, it may mean giving franchisees longer than the standard 5-year term if the modelling shows they can not get an ROI in that period.

The obligation does not mean that the franchisor is guaranteeing their franchisees a return on investment just a reasonable opportunity to do so.

The traditional Marketing fund has now been amended under sections 31 and 61 of the New Code to refer to specific purpose funds which is a fund:

• Controlled or administered by the franchisor (or its associate);
• To which a franchisee must contribute under the terms of a franchise agreement; and
• Under which the funds must be used for the specified  purpose relating to the operation of the franchised business.

The obligations imposed on franchisors regarding Specific Purpose Funds are similar to the obligations that existed for marketing and cooperative funds and extend to raising other funds, for example, fees collected for technology upgrades or special promotions.

Sanicki lawyers can assist you to ensure your compliance with these Code changes

In relation to the Specific purpose fund franchisors will need to:

• Identify if fees qualify as a Specific Purpose Fund;
• Prepare and distribute an annual financial statement for each specific purpose fund (similar to marketing funds); and
• Hold money collected for each specific purpose fund in a separate bank account.

Franchisors must ensure that going forward their Disclosure documents include information relating to Significant Capital Expenditure and Specific Purpose Funds.

Significant capital expenditure includes the purpose of the expenditure and also the rationale, timing and amount, benefits and risks of the expenditure.

Sanicki Lawyers can assist you to ensure your disclosure documents are compliant.

The Sanicki Lawyers Franchise Team has vast expertise in all aspects of franchising and can assist with a ‘health check’ of your franchise documents.

Due to the impending  date, this should be all be implemented before 1 November 2025. This can be done simultaneously with the annual franchise disclosure document update which is due by 31 October 2025.

Contact the Sanicki Lawyers Franchising Team today on 03 9510 9888 or contact Robert or Patrick on the emails below

Robert Toth: robert@sanickilawyers.com.au

Patrick Mckinlay: patrick@sanickilawyers.com.au