Legal Update Alert: New Franchise Code of Conduct
O*NO! Major changes are coming into play for franchisors and franchisees from 1 April 2025. Are you on top of them yet?
The Competition and Consumer (Industry Codes—Franchising) Regulations 2024 introduces a revised Franchising Code of Conduct, with some exceptions, effective for agreements entered into, transferred, renewed, or extended on or after April 1, 2025. For real estate agents within a franchise—whether you’re a franchisor overseeing the network or a franchisee running a local office—these changes, enacted under the Competition and Consumer Act 2010, apply directly to you.
Understanding the Revised Franchising Code
The Franchising Code of Conduct is a mandatory industry code under the Competition and Consumer Act 2010, regulating the relationship between franchisors and franchisees across Australia. The 2024 Regulations overhaul the previous framework, applying to franchise agreements and related conduct from April 1, 2025. This update seeks to improve transparency, bolster protections, and impose stricter penalties, aiming to balance the interests of both parties in the franchise relationship.
For real estate franchises, where agreements often involve substantial investment and operational reliance, these changes carry significant legal and financial consequences. Non-compliance risks hefty civil penalties, while new provisions enhance franchisee safeguards. Let’s explore the critical updates.
Key Amendments Impacting Real Estate Franchises
Escalated Civil Penalties for Non-Compliance
The new Code markedly increases penalties for breaches of certain obligations. For violations such as failing to provide an updated disclosure document or restricting a franchisee’s freedom of association, franchisors could face fines of up to $10 million. Alternatively, if a court can quantify the benefit gained from the breach, the penalty may be three times that amount—or, if unquantifiable, 10% of the franchisor’s adjusted turnover over the prior 12 months.
For real estate franchisors, this underscores the legal duty to maintain accurate, timely disclosures and uphold franchisee rights. Franchisees gain reassurance from this stronger enforcement mechanism, ensuring fair treatment under the Code.
Mandatory Disclosure of Significant Capital Expenditure and Specific Purpose Funds
The updated Code now requires franchisors to disclose in their disclosure document whether franchisees will need to undertake “significant capital expenditure” during the agreement term—meaning substantial costs material to the business, such as office upgrades or mandated technology investments common in real estate. This obligation, effective for disclosure documents created on or after November 1, 2025, must include as much detail as practicable to fully inform franchisees.
Additionally, the Code introduces the concept of “specific purpose funds”—funds controlled by a franchisor or master franchisor, into which franchisees contribute for a defined common purpose (e.g., training, excluding marketing funds). From November 1, 2025, franchisors must provide an annual financial statement within four months of the financial year’s end, detailing income sources and expenses. This boosts transparency for real estate franchisees contributing to shared operational costs.
Compensation for Early Termination by Franchisors
For agreements effective from November 1, 2025, the Code mandates that franchise agreements include provisions for compensating franchisees if the franchisor terminates early due to withdrawal from the Australian market, rationalization of its franchise network, or a change in distribution models. Compensation must cover lost profits, unamortized capital expenditure, loss of goodwill, and wind-up costs, with a clear methodology specified. Non-compliance incurs a civil penalty of approximately $187,500 (based on 2025 penalty unit values).
For real estate franchisees, this offers legal protection against sudden network disruptions; franchisors must update agreements to comply.
Refinements to Disclosure and Cooling-Off Provisions
The Code clarifies that franchisors must not execute a franchise agreement within the 14-day disclosure period after providing required documents, ensuring franchisees have sufficient time to consider their decision. Breaches attract penalties, reinforcing procedural integrity. However, franchisees renewing a substantially similar agreement with the same franchisor for the same business may waive disclosure requirements or the cooling-off period, provided this is documented in writing.
For real estate franchisees renewing established arrangements, this simplifies the process, while franchisors must adhere to execution timelines to avoid penalties.
Ombudsman Power to Publicise
The Code now gives the Ombudsman the power to publicise the names of franchisors that refuse to engage in the alternative dispute resolution process.
The ASBFEO can publish the name of a franchisor in any way that it thinks appropriate to draw attention to the behaviour of the franchisor. This is intended to encourage franchisors to meaningfully participate in the ADR process.
What You Can Do Now
To ensure compliance with the revised Franchising Code, real estate franchisors and franchisees should act proactively:
Review Existing Agreements: Determine if your franchise agreement will be entered into, renewed, or extended on or after April 1, 2025, triggering the new Code’s application.
Update Documentation: Franchisors must revise disclosure documents and agreements to reflect new requirements, including compensation provisions and expenditure disclosures, by the respective effective dates. Franchisees should request updated documents to confirm compliance.
Obtain Legal Counsel: Given the complexity and potential penalties, consult a lawyer experienced in franchise law. Our team offers practical, tailored advice for real estate agents—contact us for support.
Monitor Key Dates: Some changes commence on 1 April 2025 and other commence at a later date. Get across the commencement dates and ensure you are prepared.
Key Takeaways
Substantial Penalties: Breaches of key obligations may incur fines up to $10 million or 10% of annual turnover, compelling franchisors to prioritize compliance.
Enhanced Transparency: Mandatory disclosure of significant expenditure and annual reporting for specific purpose funds provide franchisees with essential financial insight.
Termination Protections: Franchisees are entitled to compensation for early termination by franchisors, with a clear framework required in agreements.
Procedural Flexibility: Options to waive disclosure or cooling-off requirements for renewals streamline processes, subject to strict conditions.
Your Next Steps
Prepared to address these changes confidently? Reach out today—our legal team is here to guide your real estate franchise through the updated Code with clear, actionable advice. Let’s ensure your business remains compliant and successful.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.