Buying a Franchise in Australia: Check Early Exit Options

A franchise agreement may last longer than your ability or willingness to run the business. Illness, family responsibilities or disappointing trading can make an early exit necessary. Before joining Australia’s franchising community, investigate what happens if you need to leave before the agreed end date. A right to ask for release is not the same as a right to walk away.

Understand the legal starting point

Australia’s mandatory Franchising Code of Conduct regulates the relationship between franchisors and franchisees. The Australian Competition and Consumer Commission (ACCC) oversees compliance. A new Code commenced on 1 April 2025, with some further requirements applying from 1 November 2025. Your adviser should check which provisions apply to the agreement you are considering.

The Code provides a process through which a franchisee can propose early termination in writing. The proposal should explain the reasons for wanting to end the agreement. The franchisor must provide a substantive written response within 28 days, including reasons if it refuses.

That process does not guarantee acceptance. Nor does making a request automatically suspend fees, operating duties or other contractual obligations. The Code also requires parties to act in good faith, but this does not mean a franchisor must agree to every proposed exit.

Australian Consumer Law and contract law may provide additional rights where, for example, misleading conduct or a contractual breach is involved. Poor profitability alone should not be treated as proof that you can terminate without consequences.

Read the agreement against realistic exit scenarios

Ask your lawyer to distinguish between an express contractual right to terminate and circumstances in which you would have to negotiate a release. These are different levels of protection.

Test the agreement against situations that could genuinely affect you:

• Serious illness or injury: Can you appoint a temporary manager, and does prolonged incapacity trigger any exit provision?
• Death of an owner: What must the estate or remaining owners do, and within what time limits?
• Persistent losses: Is there any agreed exit mechanism, or must you continue unless the franchisor consents?
• A change in family circumstances: Would relocation or caring responsibilities give you any contractual flexibility?
• Franchisor breach: What notices and opportunities to remedy a breach are required before you can exercise any termination right?

These are questions to investigate, not rights that every agreement necessarily contains. Record the relevant clause, notice requirements and evidence needed for each scenario.

Do not rely on an assurance that the franchisor is “always reasonable”. If an exit concession matters to your decision, ask for it to be documented in binding terms before signing.

Calculate the cost of leaving, not just the exit fee

An early exit can involve several separate financial exposures. Ask your accountant and lawyer to build an exit schedule showing which amounts are clearly payable, which depend on negotiation and which require legal assessment.

Start with outstanding fees, unpaid purchases and any contractual termination payment. Then examine whether the franchisor could claim damages for an alleged breach. Do not assume a demand for all remaining fees would automatically be enforceable: its legal basis and calculation need scrutiny.

Next, identify obligations to other parties. Ending the franchise agreement does not necessarily end equipment finance, premises commitments, employment obligations or supplier contracts. A release from the franchisor may leave these liabilities untouched.

Include practical closure costs such as removing branding, returning system materials and disposing of stock. Check who owns equipment and whether any stock repurchase arrangement exists; do not assume the franchisor must buy everything back.

Model an exit during a weak trading period rather than assuming a healthy sale price will cover the costs. This exercise assesses the affordability of stopping, rather than the profitability of continuing.

Establish what a clean release would require

Before buying, ask how the franchisor handles voluntary early termination requests. Seek a written explanation of the process, who makes the decision and what information would usually be required. Past flexibility is useful context, but it is not a promise about your case.

If you later negotiate an exit, have your lawyer review the settlement documents. They should clearly address the termination date, final payments, treatment of outstanding claims and any obligations that survive. Confidentiality, intellectual property restrictions and post-termination restraints may need separate attention.

Avoid simply closing the doors or stopping payments while a request is being considered. That could create a breach rather than secure an orderly release.

Practical takeaway: Before signing, create a one-page early exit plan covering your legal route, likely costs and continuing obligations. If leaving would be unaffordable or depend entirely on discretionary consent, factor that risk into your buying decision.