Franchise Agreement
A Franchise Agreement is a contract where a franchisor grants a franchisee the right to operate a business using the franchisor's brand and system. It is regulated by the Competition and Consumer Act 2010 and the Franchising Code of Conduct.
A legally binding contract between a franchisor and a franchisee that outlines the terms of operating a franchised business in Australia.
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About this Document
A Franchise Agreement is a vital legal contract that sets out the relationship between a franchisor who owns a business system and a franchisee who pays to use that system. In Australia, franchising is a popular way for tradespeople and small business owners to start a business using an established brand. This guide explains every part of the agreement to help you understand your rights and obligations. The Franchise Agreement creates a roadmap for how the business will operate. It covers how much you need to pay, what territory you can operate in, what marketing you must do, and what happens if you want to sell the business later. You need this document when you buy a franchise or when you are ready to offer your own business model to others. Completing this document requires careful attention to detail. You must fill in your personal details, business structure details, and specific financial terms. It is not a simple form. You should not sign it until a qualified lawyer has checked it for you. The legal requirements for franchising in Australia are strict. The Franchising Code of Conduct is a mandatory industry code under the Competition and Consumer Act 2010. This Code applies to all franchise agreements in Australia. It sets out specific rules about disclosure, information statements, cooling off periods, dispute resolution, and unconscionable conduct. If you are a franchisor, you must provide a disclosure document to a potential franchisee at least 14 days before they sign an agreement or pay any non refundable money. You must also give them an information statement about the risks and rewards of franchising. If you are a franchisee, you must read these documents carefully. The Fair Work Act 2009 sets out employment obligations. As a franchisee, you become an employer. You must understand your obligations regarding wages, awards, and conditions. If you are a franchisor, you may be held liable for the actions of your franchisee employees in some circumstances regarding sham contracting or underpayments. The Work Health and Safety Act 2011 imposes a duty on you to provide a safe workplace. This applies to franchisees who run a trade business. You must manage risks, provide training, and report incidents. The Australian Taxation Office requires specific tax structures. You must understand Goods and Services Tax, Pay As You Go withholding, and Fringe Benefits Tax. The Australian Securities and Investments Commission regulates company structures if the franchise is set up as a company. There are also Australian Standards such as AS/NZS 4801 for occupational health and safety management systems which may be relevant to trade based franchises. One major mistake to avoid is signing the agreement without legal advice. The agreement is usually drafted in favour of the franchisor. It may contain restrictions that stop you from competing or operating in certain areas after the agreement ends. You must check the renewal terms. Some agreements run for a specific term but do not guarantee you can renew them. You must understand the marketing fund. You will usually pay a percentage of your turnover to a marketing fund. You should check if you have any say in how that money is spent. You should also check the costs of transferring the agreement if you want to sell. There are often hefty transfer fees that can make selling difficult. Dispute resolution is another key area. The Franchising Code of Conduct requires a specific process for disputes. This usually involves internal discussion, mediation, and if necessary, arbitration or court action. You must understand this process before you sign. Intellectual property is also important. The agreement licenses you to use the franchisor trademarks, logos, and operating manuals. You must protect these assets and use them exactly as the manual requires. If you are a tradesperson, the manual will dictate how you perform the work, what uniforms you wear, and what equipment you use. You need to make sure you can operate profitably under these restrictions. Another mistake is underestimating the working capital required. The franchise fee is just the start. You will have set up costs, rent, stock, and wages. You should prepare a detailed business plan. You should speak to existing franchisees to get a realistic view of the earnings. The ACCC regulates unconscionable conduct and misleading conduct. If a franchisor makes false claims about earnings, they may be in breach of the law. Keep all marketing material and financial representations provided to you during the sales process. When you complete the document, ensure all schedules are attached. These include the disclosure document, the lease if applicable, and the finance details. Do not leave blanks. If a section does not apply, mark it as nil. Sign every page and have a witness sign where required. Keep a copy of the signed agreement for your records. Understanding the termination clauses is critical. The franchisor can usually terminate for breach, but they must give you notice and a chance to fix the problem unless the breach is serious. If you walk away without following the process, you may lose your investment and face damages. This document creates a long term commitment. Treat it with the seriousness it deserves.
Key Facts
- A franchisor must provide a disclosure document to a potential franchisee at least 14 days before they sign an agreement or pay any money.— Franchising Code of Conduct
- There is a 7 day cooling off period after a franchisee signs a franchise agreement during which they can withdraw from the agreement.— Competition and Consumer Act 2010
- Franchise agreements must include a dispute resolution procedure that complies with the Franchising Code of Conduct.— Franchising Code of Conduct
- A franchisee has a right to associate with other franchisees for collective bargaining or to discuss their business operations.— Competition and Consumer Act 2010
- Franchise agreements can only be ended by a franchisor if the franchisee breaches the agreement and fails to remedy the breach within a specified period.— Franchising Code of Conduct
Sources
Required Sections
Grant of Franchise
This section defines what rights are being granted to the franchisee, including the location and the territory.
Grant of Franchise
This agreement grants you the right to operate the franchised business from the specific location outlined in Schedule 1. You must conduct all business operations from these premises unless we give you written permission to move or add a location.
Exclusive Territory We grant you the exclusive right to market and sell our services within the specific territory detailed in Schedule 1. We will not establish another outlet or appoint another franchisee to operate within this boundary while this agreement remains active. You are not permitted to advertise to, or actively solicit customers from, outside your allocated territory. This restriction helps us manage brand presence and ensures a fair distribution of work among all network partners.
Business Premises Standards You must maintain the premises in a clean, safe, and professional condition at all times. You are responsible for obtaining and holding all necessary permits, licenses, and registrations required to operate the business from that location. This includes compliance with all relevant Australian building codes, Work Health and Safety (WHS) laws, and local council regulations. If you lease the premises, you must ensure the lease is in your name and that you comply with all lease terms, including rent payments and property upkeep.
Operation of Other Businesses During the term of this agreement, you must not engage in any other business activity that directly competes with our franchise. This restriction applies to you personally, your business partners, and any related entities. This includes operating similar services from the same premises or under a different trading name. , you must not use the franchised premises to sell products or services that we have not approved in writing. This rule protects the brand reputation and ensures we maintain quality control across the network.
If you wish to operate a non-competing business on the side, you must submit a written proposal to us for approval. We reserve the right to refuse consent if we believe the additional activity will negatively impact your ability to meet your obligations under this agreement or damage our brand. Breaching these restrictions may result in serious consequences, including the termination of your franchise rights.
Fees and Payments
This section outlines the initial franchise fee, ongoing royalties, and marketing contributions.
You must pay an initial franchise fee to secure your rights under this agreement. This amount is set out in Item 1 of the Disclosure Document provided to you. This fee is a one-off, non-refundable lump sum payment. You need to pay this amount in full on the day you sign this agreement. If you do not pay the initial fee, we are not required to grant you the franchise or allow you to start trading.
Once your business is operational, you must pay ongoing royalties. These payments cover the continued use of our brand, systems, and support. You must calculate the royalty amount weekly. The royalty is a percentage of your Gross Sales. The specific percentage rate is listed in Item 2 of the Disclosure Document. You must base your calculation on the actual money received by the business for all goods and services sold. You must deduct GST from the sales figure before calculating the royalty percentage. You cannot deduct any other expenses, such as supplier costs or wages, from this figure.
You must also contribute to the National Marketing Fund. This fund pays for national advertising and brand promotion. The marketing levy is a separate percentage calculated on your Gross Sales. The rate is listed in Item 3 of the Disclosure Document. Like the royalty, you must calculate this figure weekly. You must also deduct GST from the sales total before applying the marketing percentage.
All ongoing payments are due within seven days after the end of each trading week. For example, if your trading week ends on Sunday, payment is due by the following Sunday. You must pay these amounts via direct electronic transfer to the bank accounts listed in the Schedule of this agreement.
We calculate your obligations based on the Franchising Code of Conduct. You must keep accurate records of all sales for at least five years. We may audit your records to check your payments. If an audit shows you have underpaid, you must pay the shortfall plus interest and the cost of the audit.
If you do not make a payment by the due date, we will charge a late fee. This fee is calculated on a daily basis at the rate set out in the Schedule. Continued failure to pay fees on time is a serious breach of this agreement and may lead to termination.
Obligations of the Franchisee
This section lists what the franchisee must do, such as following the manual and complying with laws.
The Franchisee must operate the Business at the Premises exclusively as a franchised outlet under the System. You must follow the Operations Manual at all times. The Operations Manual contains the mandatory standards, procedures, and specifications you need to run the Business. We may update the Operations Manual to reflect changes in the law or industry standards. You must implement these updates immediately to ensure consistent quality and brand reputation.
You must comply with the Franchising Code of Conduct. This code sets out the rights and responsibilities for franchisors and franchisees in Australia. You also have strict obligations under the Australian Consumer Law. You must not engage in misleading or deceptive conduct. You must ensure all goods and services you supply are fit for their intended purpose. You must honour all consumer guarantees regarding title, acceptable quality, and match with description.
You must obtain and maintain all necessary registrations, licences, and permits required to operate the Business. This includes any local council permits, state-based trade licences, and specific industry certifications required for your trade. You must display all required licences at the Premises.
You are responsible for hiring, managing, and paying your own staff. You must comply with the Fair Work Act 2009. This includes paying employees at least the minimum rates set out in the relevant Modern Award or Enterprise Agreement. You must adhere to the National Employment Standards. These standards provide the minimum safety net for all employees in Australia. You must also meet your obligations regarding superannuation, workers compensation insurance, and workplace safety. You need to ensure your workplace complies with the Work Health and Safety Act to provide a safe environment for your workers and customers.
You must use only approved products and suppliers listed in the Operations Manual. Using unapproved goods or materials will breach this Agreement. You must maintain the Premises in a clean, safe, and hygienic condition at all times. This includes regular maintenance and repairs to keep the facility up to the brand standard. You must present the Brand in a professional manner. This applies to your uniforms, signage, vehicle branding, and customer service.
You must participate in all mandatory training programs. This ensures you and your staff stay up to date with operational changes and safety procedures. You must keep accurate and complete business records. We may inspect these records at reasonable times during business hours to verify your compliance with this Agreement and the law. You must submit financial reports and sales data to us in the format and timeframe we require.
You must not sell, assign, or transfer this Agreement without our prior written consent. Any proposed change of ownership must follow the process outlined in this Agreement. You must notify us immediately of any legal claims or regulatory investigations involving the Business.
Termination and Renewal
This section explains how the agreement ends, how it can be renewed, and what happens upon termination.
Term of the Agreement
This Agreement begins on the Start Date and continues for a fixed period known as the Initial Term. You must check the specific duration in the Schedule at the front of this document. The Franchisees Act requires us to state this fixed term clearly so you understand your commitment. The agreement does not end automatically when the fixed term expires. You or we must take action to decide what happens next.
Renewal Process
If you wish to continue running the business after the Initial Term, you must follow the renewal process. You cannot simply keep trading. You must give us written notice of your intention to renew within the timeframe set out in the Schedule. We will generally provide you with a Disclosure Document at least 14 days before the renewal date, as required by the Franchising Code of Conduct.
Renewal is not automatic. You must be up to date with all payments and have complied with your obligations. We also have the right to refuse renewal for specific commercial reasons. If you sign a renewal agreement, you enter into a new contract. This often means you sign another agreement for a further fixed term. You should review the new terms carefully, as we may update operational fees or manual requirements to reflect current market conditions.
Termination for Breach
If you break a term of this Agreement, we have the right to terminate it. However, the Franchising Code of Conduct sets strict rules about how and when we can do this.
For significant breaches, we must give you at least 30 days written notice to fix the problem. A significant breach includes things like failing to pay royalties or not trading in the required manner. If you fix the issue within that 30 day period, the agreement continues. If you do not fix it, we may terminate the agreement immediately.
For less serious breaches, we must give you at least 7 days written notice to remedy the issue. If you fail to remedy a minor breach, and then commit another breach of the same type within 12 months, that subsequent breach becomes a serious breach.
In specific cases, such as fraud or if you jeopardise the reputation of the network, we may terminate the agreement immediately without giving you a chance to remedy the problem. We will follow the dispute resolution procedure set out in this Agreement before any termination takes effect to ensure we act fairly and in accordance with Australian law.
Dispute Resolution
This section sets out the steps the parties must take if they have a disagreement.
Dispute Resolution
If a problem comes up between the franchisor and the franchisee, we must try to fix it quickly and fairly. This clause explains the steps we will take. We have designed this process to meet the rules in the Franchising Code of Conduct.
Step 1. Notice and Negotiation If you have a dispute, you must send a written notice to the other party. This notice needs to explain the problem and what outcome you want. Within 14 days of getting that notice, a representative from each side must meet to talk about the issue. This meeting can happen in person, over the phone, or via video call. The goal here is to negotiate a solution without involving outsiders. You should keep a record of what you discuss.
Step 2. Mediation If we cannot fix the problem through negotiation, we will go to mediation. This is a mandatory step under the Franchising Code of Conduct. We must select an approved mediator from the Office of the Franchising Mediation Adviser. The mediator does not decide who is right or wrong. Instead, they help us talk to each other and reach an agreement.
Each party must pay their own costs for getting legal advice or preparing for the mediation. We usually share the cost of the mediator’s fees equally, unless we agree otherwise. You cannot start court proceedings while the mediation is happening. The Australian Small Business and Family Enterprise Ombudsman can also provide information and assistance during this stage if you need it.
Step 3. Arbitration If mediation does not work, or if the issue is urgent, we will use arbitration to settle the dispute. This avoids the need to go to court. We will agree on a qualified arbitrator to look at the case. The arbitrator acts like a judge. They will look at the evidence and make a final decision. This decision is binding on both the franchisor and the franchisee. The Federal Court of Australia or the Supreme Court of your state can enforce this decision if needed.
The arbitration process is private and usually faster than the court system. The arbitrator will decide how the costs of the arbitration are paid. By signing this agreement, you agree that the decision of the arbitrator is final and you waive your rights to appeal in most circumstances.
Intellectual Property
This section covers the use of the brand name, logos, and proprietary systems.
- Grant of Licence
We grant you a non-exclusive, non-transferable licence to use the trademarks and the operations manual for the sole purpose of operating your business during the term of this agreement. You must only use these intellectual property rights at the approved location and in accordance with our standards. This licence is limited. It does not give you any ownership of the trademarks or the manual. You cannot use the intellectual property for any other business purpose or sell any unapproved goods or services. If you wish to use the trademarks on signage, vehicles, or uniforms, you must submit your designs to us for written approval before you print or produce them.
- Ownership and Standards
We confirm that we are the sole owner of the trademarks and the operations manual. You acknowledge that your rights to use them come from this agreement only. You must not do anything to harm our reputation or the distinctiveness of the trademarks. Under the Competition and Consumer Act 2010, we are required to act fairly and transparently, but you must also ensure your use of the system complies with consumer law.
You must follow the operational procedures set out in the manual. These procedures are designed to ensure consistent service delivery across the network. We may update the manual from time to time to reflect changes in the law, technology, or market conditions. When we issue an update, you must implement the changes within the timeframe we specify. This ensures you remain compliant with relevant Australian Standards and industry codes of practice.
- Protection and Infringement
You must not register any business name, domain name, or trademark that is similar to ours or might cause confusion in the marketplace. If you become aware of any infringement of our intellectual property by a third party, you must notify us immediately. We reserve the right to take action against any party who infringes our rights. You must not take any legal action against infringers on our behalf without our specific written instructions.
If you use the intellectual property incorrectly, you will be in breach of this agreement. We require you to remove any incorrect signage or branding immediately upon request. At the end of this agreement, your right to use the trademarks and the manual ceases immediately. You must remove all signage and return or destroy all copies of the manual and any materials bearing our trademarks. You must not keep any digital copies of the manual or confidential information for future use.
Frequently Asked Questions
What is a Franchise Agreement?
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