Once a franchise agreement is signed, many assume the deal is locked in. Under the Franchising Code of Conduct, however, that is not strictly the case.
The Code provides franchisees with a statutory “cooling off period” — a short window of time after signing during which they can walk away from the agreement. For any franchise lawyer, this is a critical protection mechanism, but one that is often misunderstood in practice.
What is the cooling off period?
In simple terms, the cooling off period gives a franchisee the right to terminate a new franchise agreement within 14 days after entering into it (section 50(1)).
This means that even after signing, the franchisee has a limited opportunity to reconsider the decision and exit the arrangement without being locked into a long-term commitment.
Importantly, this right exists automatically under the Code, unless the franchisee has validly opted out in limited repeat franchise scenarios (section 50(7)).
From a practical perspective, a franchise lawyer will often describe this as a “last safeguard” — a final opportunity for the franchisee to step back after committing on paper.
When does the cooling off period start?
The general position is that the 14-day period begins on the date the franchise agreement is entered into (section 50(1)).
However, sections 50(2)–(4) introduce important variations where premises are involved.
If the franchisee is to lease or occupy premises through the franchisor (or an associate), the cooling off period may instead run from:
- the date the franchisee first receives a document setting out the lease or occupancy terms (section 50(3)(a));
- if those terms later change in a material way, the date of the updated terms (section 50(3)(b)); or
- in some cases, the date the lease is actually entered into, where materially different terms were not disclosed earlier (section 50(4)).
These provisions operate alongside the general rule, rather than replacing it (section 50(5)).
This reflects a practical reality: premises arrangements are often central to the franchise decision. If those details are not known upfront, the Code effectively gives the franchisee a fresh opportunity to reconsider once they are.
A careful franchise lawyer will therefore always look not just at the franchise agreement date, but also at when lease documents were provided and finalised.
What happens if the franchisee cools off?
If a franchisee exercises the cooling off right under section 50, the franchisor must, within 14 days, refund all payments made in connection with the agreement (section 51(1)).
However, the franchisor is permitted to deduct its reasonable expenses, provided those expenses (or the method of calculating them) are set out in the agreement (section 51(2)).
In practice, this often includes costs such as legal fees, document preparation, or administrative expenses. A franchise lawyer will usually recommend that these are clearly documented in the agreement to avoid dispute if the cooling off right is exercised.
When does the cooling off period not apply?
The cooling off right does not apply in all circumstances.
Section 50(6) confirms that it does not apply to:
- renewals of existing franchise agreements;
- extensions of the term or scope of an existing agreement; or
- transfers that do not involve entry into a new franchise agreement.
In transfer scenarios, separate cooling off rights may arise under section 52. In those cases, a new franchisee may terminate within 14 days of becoming the franchisee, or before taking possession and control of the business (section 52(2)–(3)).
This distinction is important, and a franchise lawyer will usually consider carefully whether a transaction is structured as a new agreement or a transfer, as this affects which cooling off provisions apply.
Practical timing: why commencement dates matter
As a matter of practice, many franchisors structure their agreements so that the commencement date of the franchise is at least 14 days after the contract date.
This is not mandated by the Code, but it aligns with how section 50 operates in practice.
The reason is straightforward: if the cooling off period under section 50(1) expires before the business formally commences, both parties have greater certainty. The franchisor avoids the operational disruption of a franchisee exiting shortly after launch, and the franchisee has the benefit of the statutory period without having already started trading.
For this reason, a franchise lawyer will often recommend aligning the commencement date so that the cooling off period runs its course in the background, rather than overlapping with the operational start of the business.
Magnolia’s view
At Magnolia Legal, we see the cooling off period as a key consumer protection feature of the Code — but one that requires careful handling in practice.
Sections 50 to 52 create a layered regime, with different triggers depending on whether the agreement is new, involves premises, or arises by way of transfer. Understanding which provision applies is critical.
For franchisors, it is important to structure timing and documentation with the cooling off period in mind, particularly where premises and commencement dates are involved.
For franchisees, it is a valuable safeguard, but one that should not replace proper upfront due diligence.
Where time permits, the most prudent approach is always to obtain advice from a franchise lawyer before signing, rather than relying on the ability to unwind the deal afterwards.
As with many aspects of franchising, clarity and timing at the outset will almost always produce a smoother outcome for all parties.