Checking Franchise Contracts for Unfair Terms in Australia

Turning your existing business into a franchise means deciding which controls you genuinely need—and which would unfairly shift risk onto franchisees. A contract copied from another business can contain powers that do not suit your model. Before offering your first franchise, carry out a focused unfair terms review with a specialist lawyer. This helps establish a more balanced relationship within your franchising community.

Understand the legal rules before drafting

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 further requirements applying from 1 November 2025.

The Code is not the only legal test for your agreement. Contract law and the Australian Consumer Law, including its unfair contract terms provisions, also matter. Compliance with the Code does not automatically make every contractual term fair.

Most Australian franchisees have protections under unfair contract terms laws. These apply to qualifying small business contracts that are standard form contracts. Your lawyer should assess coverage rather than assume that every agreement falls within, or outside, the rules.

Broadly, a term may be unfair where it:

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

Transparency and the contract as a whole also matter. Courts ultimately determine whether a term is unfair. Proposing, using or relying on unfair terms in covered contracts can attract penalties, so this is not simply a question of whether a clause will be enforceable later.

Match each control to a genuine business need

Start with the controls you believe are essential to reproducing your existing business. These might cover service standards, brand presentation, reporting or access to business systems.

For each control, write down the specific interest it protects. “We want complete discretion” is not a useful explanation. “We need consistent food handling procedures to protect customers” identifies a concrete purpose that can guide proportionate drafting.

Create a working table with four columns:

• Proposed power: what the franchisor can require or change.
• Business reason: the risk or legitimate interest being addressed.
• Franchisee impact: likely costs, disruption or restrictions.
• Safeguard: limits, notice, consultation or review arrangements.

For example, a power to change an online reporting format may be operationally necessary. A power to require any replacement technology, at any price and without notice, raises much wider concerns. Ask whether the clause can distinguish routine administrative updates from changes with substantial financial consequences.

Safeguards are not an automatic legal cure. They help your lawyer assess whether the proposed power is appropriately limited and justified.

Review the wording most likely to shift risk

Read your draft from the perspective of someone investing their own savings in the business. Pay particular attention to clauses that let one party change obligations, determine whether a breach has occurred, impose costs or avoid responsibility.

An indemnity deserves careful review if it appears to make the franchisee responsible for losses caused by the franchisor’s own actions. Similarly, a clause allowing the franchisor to change charges without a defined basis needs more scrutiny than a clear, limited adjustment mechanism.

Look beyond the main agreement. An apparently narrow clause may become much broader when it incorporates policies, schedules or operating requirements that the franchisor can alter. Check what the combined documents actually allow—not just what you currently intend to do.

Ask your lawyer to explain:

• Which obligations are one-sided, and why.
• Whether discretion has meaningful boundaries.
• Whether financial consequences are understandable before signing.
• Whether incorporated documents expand powers unexpectedly.
• Whether less burdensome wording could protect the same interest.

Do not assume that inviting comments or negotiating one clause means the entire agreement stops being standard form. Equally, plain English improves transparency but does not rescue an unfair allocation of risk.

Make the review part of launch approval

Complete this review before issuing agreements to prospective franchisees. Give your lawyer the operating model, proposed charges, relevant policies and examples of decisions you expect to make—not merely the contract template.

Keep a short internal explanation of significant controls and their safeguards. Train anyone administering the agreement to follow those limits. A carefully drafted clause offers little practical protection if staff describe it as an unrestricted power.

Revisit the review when introducing material contractual changes. The Code’s good faith obligation also applies throughout the franchising relationship; contractual discretion is not permission to ignore it.

Practical takeaway: Before offering your first franchise, require a clear business reason, an impact assessment and specialist legal review for every significant discretionary power. Protect the business with proportionate terms, not the broadest wording available.