ACCC Guidance Gives Franchisors More Clarity on New Code Changes
New ACCC guidance clarifies compensation for early termination and the requirement that franchisees get a reasonable opportunity to return their investment.
Business owner reviewing a Franchising Code document with a lawyer at a desk
The Australian Competition and Consumer Commission has released guidance on upcoming Franchising Code changes due to take effect from 1 November 2025, giving franchisors and franchisees more clarity on two of the most closely watched parts of the revised rules.
The guidance focuses heavily on compensation for early termination and the requirement that franchisees have a reasonable opportunity to make a return on their investment. These issues had caused concern across the franchise sector because of the practical impact they could have on agreements, renewals and network restructures.
Under the guidance, franchisors may need to compensate franchisees for early termination in certain circumstances, including where a franchisor withdraws from the Australian market, rationalises its network, or changes distribution models. Franchise agreements must specify how compensation will be calculated.
The factors to consider include projected loss of revenue and profit, unamortised capital expenditure required by the franchisor, loss of opportunity to sell goodwill, and costs involved in winding up the business. The Code also requires buy-back provisions or compensation for relevant stock, equipment or branded merchandise.
For franchisors, this means exit strategy planning now needs to be much more detailed. If a brand wants to withdraw from a territory, close part of a network or shift to a different model, it may need to consider the financial impact on franchisees more carefully.
The other major issue is the "reasonable opportunity" requirement. The ACCC clarified that this is not a guarantee of profit and does not remove the normal risks of business ownership. However, franchisors must still provide franchisees with a reasonable opportunity to recoup required capital investment during the agreement term.
That could have major implications for franchise recruitment and agreement length. If a franchisee is required to invest heavily in fit-out, equipment or stock, the agreement term may need to give them a realistic chance to earn that investment back.
The ACCC also suggested franchisors should make sure their business model can deliver profit, avoid overly tight margins, use evidence-based financial information, apply clear franchisee selection criteria and alert buyers to unusual business risks.
The message is simple: the new Code does not promise franchisee success, but it does expect franchisors to offer opportunities that are genuinely capable of working.
"The new Code does not promise franchisee success, but it does expect franchisors to offer opportunities that are genuinely capable of working."
Originally reported by Franchise Executives →
