Buying a Franchise in Australia: Spot Unfair Contract Terms

A franchise agreement can look polished and still contain terms that deserve challenge. Before joining Australia’s franchising community, check whether the contract gives the franchisor powers or protections that leave you carrying disproportionate risk. Unfair contract terms law provides important safeguards, but it is 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. Alongside it, the Australian Consumer Law contains protections against unfair terms in standard form small business contracts.

For contracts made or renewed from 9 November 2023, the small business protections generally apply where at least one party employs fewer than 100 people or has annual turnover below $10 million. Changes to terms in existing contracts can also bring those terms within the newer rules. Ask your solicitor to confirm how the rules apply to your proposed agreement.

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

Under the current rules, proposing, using or relying on unfair terms in covered contracts is prohibited and can attract penalties. A court determines whether a term is unfair; neither a franchisor’s reassurance nor a buyer’s objection settles the legal question.

Compliance with the Franchising Code does not, by itself, establish that every clause is fair under the Australian Consumer Law.

Apply the three-part fairness test

A term is unfair if it meets all three elements of the statutory test:

• It would cause a significant imbalance in the parties’ rights and obligations.
• It is not reasonably necessary to protect the legitimate interests of the party benefiting from it.
• It would cause financial or other detriment if applied or relied upon.

The court also considers how transparent the term is and the contract as a whole. Plain language helps you understand a clause, but clear wording does not automatically make an unfair term acceptable. Equally, a clause that initially looks one-sided may have a legitimate justification when read in context.

Some terms fall outside this assessment, including terms defining the contract’s main subject matter, setting the upfront price payable, or required or expressly permitted by law. Do not assume every expensive or commercially unattractive provision is legally unfair.

For your review, turn the legal test into practical questions: what can the franchisor do, what protection do you receive, and what loss could follow? Then ask why that allocation of risk is necessary.

Flag clauses that shift disproportionate risk

Focus on the effect of the wording rather than its heading. These examples warrant legal scrutiny; they are not automatically unlawful.

Broad indemnities. An indemnity may require you to reimburse another party for specified losses. Check whether yours could cover losses caused by the franchisor’s own negligence, misconduct or breach. Ask whether responsibility can be limited to loss caused by your actions or those for whom you are responsible.

One-sided exclusions of liability. Look for provisions excusing the franchisor from responsibility for failing to perform while leaving you fully liable for comparable failures. Consider the agreement as a whole, including any remedies available elsewhere.

Unilateral interpretation powers. A clause giving the franchisor sole power to decide what the agreement means, or whether you have breached it, deserves attention. Ask whether there is an objective standard and a meaningful opportunity to challenge the decision.

Restrictions on evidence or legal action. Flag clauses that appear to limit the evidence you can present or your ability to enforce contractual rights. A requirement to follow a legitimate dispute process is different from wording that effectively removes a remedy.

For each concern, write down a realistic scenario showing how the clause could operate. This makes the discussion more useful than simply labelling the agreement unfair.

Seek precise changes before committing

Give your franchise solicitor a short list of flagged clauses, their possible consequences and the protection you want. Request specific drafting changes, such as a narrower indemnity, reciprocal responsibilities or an objective decision-making standard.

Ask the franchisor to explain the legitimate business interest behind any provision it wants to retain. Consistency across a franchise network can matter, but saying that everyone signs the same agreement does not resolve the fairness question.

Keep written records of proposed amendments and responses. Where a change is agreed, have your solicitor check that the executed documents give it legal effect. Do not rely on an informal promise that a troubling clause will never be enforced.

Practical takeaway: Before signing, identify one-sided powers, test their consequences and seek targeted legal amendments. Unfair contract terms protections are a safeguard—not a reason to accept avoidable contractual risk.