Buying a Franchise in Australia: Spot Unfair Contract Terms

A recognisable brand does not make every clause in its franchise agreement fair. Before joining Australia’s franchising community, check whether the contract gives the franchisor powers that leave you carrying disproportionate risks. Unfair contract terms protections can help, but they are not a substitute for understanding and negotiating the agreement before you commit.

Understand which protections apply

Australia specifically regulates franchising through the mandatory Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission (ACCC). A new Code commenced on 1 April 2025, with some requirements applying from 1 November 2025. Your lawyer should check which provisions apply to your proposed agreement and transaction.

The Code operates alongside contract law and the Australian Consumer Law (ACL). The ACL’s unfair contract terms protections are particularly relevant when assessing a franchisor’s standard agreement.

These protections generally apply to standard form small business contracts where at least one party employs fewer than 100 people or has annual turnover below $10 million. Most prospective franchisees are likely to qualify, but your adviser should confirm your position.

A standard form contract is typically prepared by one party and offered with little meaningful opportunity to negotiate. Allowing you to discuss a few minor details does not necessarily stop an agreement being standard form.

Importantly, a commercially unattractive term is not automatically unlawful. Some terms, including those defining the contract’s main subject matter or setting its upfront price, are excluded from the unfairness assessment.

Look for an imbalance, not just tough wording

Under the ACL, a term may be unfair where it creates a significant imbalance between the parties’ rights and obligations, is not reasonably necessary to protect the advantaged party’s legitimate interests, and would cause detriment if applied or relied upon.

The assessment also considers transparency and the contract as a whole. A court ultimately decides whether a disputed term is unfair; neither a buyer nor a franchisor can settle that question simply by labelling it.

Ask your lawyer to examine clauses that appear to let the franchisor:

• Change substantial obligations without clear limits, notice or safeguards.
• Impose financial consequences that seem disproportionate to a breach.
• Avoid responsibility for its own failures while requiring you to accept broad liability.
• Decide conclusively whether you have breached the agreement, without a meaningful way to challenge that decision.
• Restrict your ability to rely on representations made during recruitment.

These are review points, not a list of automatically prohibited clauses. Franchisors need legitimate controls to protect their brand and maintain consistency across the community. The question is whether the drafting goes further than reasonably necessary.

For example, a requirement to follow reasonable operating standards differs from an unrestricted power to impose any new obligation, immediately and entirely at your expense.

Test how each clause would work in practice

Read the agreement with its schedules and any documents it incorporates, including relevant operating manual provisions. A short clause can grant extensive powers through a separate document.

For each concern, write down a realistic scenario. If the franchisor changes a mandatory reporting system, who pays for the transition? How much notice is required? Can changes be imposed while you are still adapting to an earlier requirement?

Create a simple review table containing:

• The clause number and the power it grants.
• The circumstances in which it can be used.
• Your likely financial or operational exposure.
• Any notice, consultation or challenge mechanism.
• The clarification or amendment you want.

Ask your accountant to help assess the commercial consequences where necessary. Give your lawyer the written promises made during recruitment so they can identify inconsistencies with the contract. A reassurance that a power is “never used” does not remove it from the agreement.

Request specific changes before committing

Instead of asking whether the contract is fair overall, propose targeted safeguards. These might include reasonable notice, objective criteria, proportionate consequences, exceptions for matters outside your control, or liability provisions that reflect each party’s responsibility.

Ask the franchisor to explain the legitimate purpose of a disputed clause and why narrower wording would not achieve it. Record the answer and have any agreed amendment incorporated into the final documents.

Australian law prohibits proposing, using or relying on unfair terms in covered contracts, and penalties can apply. Nevertheless, do not sign on the assumption that an objectionable clause can simply be ignored later. Obtaining a remedy can involve uncertainty, time and expense.

Practical takeaway: Before signing, have an independent franchise lawyer identify potentially unfair terms, explain their practical consequences and seek written safeguards. Judge the deal by the final contract—not assurances about how generously it will be administered.