You have found a franchise you like. The brand looks promising, the conversations have been positive, and you are ready to get started.
Then the franchise agreement arrives.
It may be lengthy, unfamiliar and described as “standard”. But it sets out what you must pay, how you must operate, what the franchisor can require and what happens if the relationship ends.
A franchise agreement review should help you understand those obligations—and whether they fit your plans—before you commit.
What does a franchise lawyer actually review
A useful review goes beyond explaining the clauses individually. It considers their combined commercial effect.
Can you operate through a manager if that is your intention? Does the term give you enough time to earn a return? What happens if costs increase, the business struggles or you need to sell?
The franchise agreement, disclosure document and any lease or occupation licence should be considered together. A reassuring provision in one document may be qualified by another.
What will the franchise really cost
The initial franchise fee is only the starting point.
Check royalties, marketing contributions, technology fees, training, supplier requirements and local advertising expenditure. What further amounts can the franchisor introduce or increase?
Budget for the premises, fitout, equipment, insurance, professional fees and working capital too. Ask what upgrades or refurbishment may be required during the term or on renewal.
Your financial assessment should reflect the contractual obligations, rather than just the headline investment figure.
Does the agreement fit how you intend to work
Some franchises require the franchisee or a nominated director to work in the business full-time. Others permit an approved manager but impose training, supervision and availability requirements.
If you intend to retain another job, operate several businesses or take a largely supervisory role, check that the agreement accommodates this.
Also consider minimum trading hours, reporting requirements, performance targets and staffing obligations. These can materially affect both your workload and your operating costs.
How protected is your territory
An “exclusive territory” needs careful reading.
Does it restrict the franchisor and its associates, or only other franchisees? What about online sales, delivery platforms, national accounts, alternative brands or different distribution channels?
Understand what protection you receive and what competition the agreement permits. The territory shown on a map may be subject to substantial exceptions elsewhere.
Are there harsh or unexpected clauses
This is an important part of a franchise agreement review. Some provisions have consequences that are easy to miss on a first reading.
Termination rights: Can the franchisor terminate without a breach, or for a relatively minor failure? What notice and opportunity to remedy are required? Contractual wording must also be considered against the Franchising Code and applicable law.
Rights to change the business: Can the franchisor change suppliers, products, systems, equipment or operating procedures? Could changes to the operations manual introduce substantial costs or obligations? Check the limits, notice requirements and any consultation process.
Asset purchase rights: On termination or expiry, can the franchisor acquire your equipment, stock or fitout? How is the price calculated? A depreciated, book-value or nominal-price mechanism may produce a very different result from the value you expect.
Personal exposure: Guarantees and indemnities may expose directors or other guarantors to business debts and claims. Check whose conduct is covered, whether responsibility is fairly allocated and whether obligations continue after exit.
Exit obligations: You may have to remove branding, return information, transfer telephone numbers or digital accounts, dispose of stock, vacate premises and make good the fitout. There may also be restraints on competing, contacting customers or employing staff.
These clauses deserve practical explanation. What could trigger them, what would you have to do, and what might it cost?
What happens when the term ends or you want to sell
Check the franchise term, renewal rights and conditions. Renewal may require further fees, refurbishment or entry into the franchisor’s then-current agreement.
If you want to sell, what consent and transfer conditions apply? Must outstanding breaches be remedied, amounts paid and a surrender document signed? Are there transfer fees or a franchisor purchase option?
Consider goodwill too. Paying for or building a valuable business does not necessarily give you a right to compensation when the franchise ends.
For a premises-based franchise, compare the franchise term with the lease and its options. You need both the right to operate under the brand and the right to occupy the site.
What protection does the Franchising Code provide
The Franchising Code of Conduct provides important protections, but it does not replace careful review of the commercial deal.
For a new franchise agreement, section 23 generally requires the prescribed documents and a 14-day consideration period before the franchisor executes the agreement. Certain changes or later earnings information can restart that period. This is an important provision that provides a clear window to obtain advice.
Section 50 generally provides a 14-day cooling-off right after entering into a new agreement, with additional rights in certain franchisor-provided premises arrangements. Section 51 addresses refunds following cooling off, including permitted deductions.
The Code also regulates termination. Sections 55–59 address different termination circumstances and processes. A contractual termination clause cannot be assessed in isolation from those requirements.
For applicable agreements, section 44 requires a reasonable opportunity to make a return during the term on investment required by the franchisor. It does not guarantee profitability.
These references are to the Code in the Competition and Consumer (Industry Codes—Franchising) Regulations 2024. Application dates and exceptions need to be checked for the particular transaction.
Can you negotiate a franchise agreement
You can request amendments, although the franchisor may decline them.
A focused negotiation should address the matters that affect your decision to proceed: an operating requirement inconsistent with your plans, uncertain fees, inadequate tenure or substantial exposure under an indemnity or exit clause.
Even where amendments are refused, the review helps you make an informed decision about the obligations you are accepting. Any important concession should ideally be recorded in the agreement.
How much does a franchise agreement review cost
The cost depends on the documents and scope of work. Check whether the quote includes the disclosure document, a consultation and advice on related premises arrangements, and whether negotiations are additional.
At Magnolia Legal, I provide franchise agreement reviews with clear written advice and a consultation to work through the practical issues. We identify provisions requiring clarification or consideration and discuss amendments worth seeking.