Buying a Franchise in Australia: Check Legal Cost Charges

When buying a franchise in Australia, your own solicitor’s bill may not be the only legal expense presented to you. The franchisor may also ask you to contribute towards its legal costs. Before joining a franchise community, check each charge separately: a fee appearing in the agreement does not automatically mean it is permitted or clearly defined.

Understand the rules on passing on legal costs

Australia’s mandatory Franchising Code of Conduct regulates the relationship between franchisors and franchisees. The current Code commenced on 1 April 2025 and is enforced by the Australian Competition and Consumer Commission (ACCC). The Australian Consumer Law and general contract law also matter when reviewing charges and contractual obligations.

The Code restricts a franchisor’s ability to make a franchisee pay its legal costs. There is a limited exception for legal costs associated with preparing, negotiating or executing the franchise agreement: the agreement must specify a fixed amount for those costs. This is not permission to pass on an unlimited solicitor’s bill.

The Code also prohibits terms requiring a franchisee to pay the franchisor’s costs of settling a dispute. A clause should not be accepted simply because it is described as standard across the network.

Ask your solicitor to identify the applicable rules, including any transitional provisions relevant to the agreement you are being offered. They should distinguish permitted charges from prohibited cost-shifting rather than treating every legal expense as an ordinary purchase cost.

Find every place a charge could appear

Do not search only for a heading labelled “legal fees”. Ask your adviser to review the agreement’s payment provisions, indemnities and schedules, together with any separate payment request.

Potential warning signs include references to:

• All costs incurred by the franchisor in connection with the agreement.
• Reimbursement of external advisers’ invoices.
• Documentation, administration or establishment charges with no explanation.
• Additional expenses arising from negotiations or requested amendments.
• Costs connected with complaints or disputes.

These descriptions do not all mean the same thing, and not every administration fee is a legal fee. The point is to establish what the payment actually covers. Relabelling a legal cost does not, by itself, resolve whether the Code permits the charge.

Create a simple list showing each charge, its contractual basis, the recipient, the amount and the payment date. Note whether GST is included. Compare this list with the disclosure document and any invoice or offer summary. Ask the franchisor to explain discrepancies in writing before you commit.

Require a clear amount and a defined purpose

For a proposed contribution towards preparing, negotiating or executing the franchise agreement, locate the fixed amount in the agreement itself. A verbal estimate or an assurance that the bill is “usually modest” is not an adequate substitute.

Ask these practical questions:

• Does the stated amount cover the whole agreement process?
• Is the charge payable even if the transaction does not proceed?
• Could the franchisor seek another payment after negotiations?
• Is the same work already included in an establishment fee?
• Are separate documents attracting separate charges, and on what basis?

For example, an agreement might state a fixed documentation charge while another clause requires reimbursement of every legal expense arising from negotiations. Your solicitor should reconcile those provisions and request amendments where necessary. Do not rely on a reassuring email while leaving conflicting wording in the contract.

Separate your own advice costs from the franchisor’s charges. Paying towards the franchisor’s legal work does not make its solicitor your adviser or mean your interests have been independently reviewed.

Resolve uncertainty before authorising payment

Ask for an itemised written explanation of any unclear charge. Give that explanation, the proposed agreement and the relevant disclosure material to your independent solicitor together, so they can assess the substance of the obligation.

Do not assume a payment deadline overrides your pre-entry disclosure rights. The Code generally requires the franchise agreement, disclosure document and a copy of the Code to be provided at least 14 days before you enter the agreement or make a non-refundable payment. Your solicitor should confirm how the requirements apply to your transaction.

If the franchisor agrees to remove or narrow a charge, ensure the final documents reflect that change. Keep the signed version, invoices and payment records together. If a potentially prohibited charge remains, obtain advice before paying rather than assuming you can recover it later.

Practical takeaway: Before signing, have your solicitor classify every proposed franchisor legal-cost charge, confirm its legal basis and check that any permitted contribution is clearly documented. Budget for independent advice separately.