Recent Development to the Franchising Code: the Right to Make a Return on Investment

Recent changes to the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (Cth) (Franchising Code) have significantly changed the considerations required for franchisors when entering into franchise agreements.

From November 2025, franchisors must now ensure that new franchise agreements, or renewal or extensions of existing franchise agreement provide franchisees with a reasonable opportunity to make a return on investment.

Key Takeaways:

1. franchisee’s now have the right to make a “return” on their investment during the term of a franchise agreement;
2. “reasonable opportunity” is not defined in the Franchising Code, and will require a point in time assessment on a per franchise agreement basis.
3. breach of this prohibition may attract substantial civil penalties.

The Prohibition

Section 44(2) of the Franchising Code now provides:

A franchisor must not enter into a franchise agreement unless the agreement provides the franchisee with a reasonable opportunity to make a return, during the term of the agreement, on any investment required by the franchisor as part of entering into, or under, the agreement.

Meaning of “Reasonable Opportunity to Make a Return”

The Franchising Code does not provide specific guidance as to what constitutes a “reasonably opportunity”. The ACCC has stated, however, that “reasonable opportunity” means what a typical person would see as fair and reasonable, based on factors that may include:

1. the duration of the agreement;
2. the terms and conditions of the agreement;
3. the underlying business model;
4. the amount of the investment;
5. business type;
6. location;
7. costs and fees;
8. economic conditions;
9. regulation;
10. competition;
11. franchisee’s skills and resources;
12. level of franchisor support;
13. length of agreement.

Importantly, the requirement to provide reasonable opportunity to make a return on investment does not mean that franchisors must guarantee that a franchise business see a return on their investment.

Indeed, the ACCC has further clarified that, “A reasonable opportunity doesn’t mean that the franchisor guarantees the profitability or the success of a business. It also doesn’t remove the inherent risks of running a business”.

How to ensure that Franchisees have a reasonable opportunity to make a return on their investment

Franchisor’s should seek to ensure that franchise agreements are structured appropriately to provide the Franchisee with an opportunity to make a return on their investment. This will likely involve having regard to the overall business model of the franchise and the commercial terms of the particular franchise agreement, including:

1. whether profit is likely or practical impossible;
2. the cost-base of the franchised business;
3. the franchisee’s anticipated revenue;
4. whether the franchisee has the relevant skills and experience to successfully operate the franchised business; and
5. whether the franchisor has provided the franchisee with appropriate training and support.

Consequences of failing to comply with section 44(2)

If a franchisor fails to provide a reasonable opportunity to make a return on investment:

1. the franchisee may be entitled to issue the franchisor with a dispute notice; or
2. the franchisor may be exposed to civil penalties, which can be enforced by the ACCC.

At the time of writing, the maximum civil penalty for breach of s 44(2) is 600 penalty units, or $218,000.00.

Going Forward

The Commonwealth Governments position with respect to franchise agreements is clear, but the legislation is not. The onus will be on franchisors to undertake a commercially sensitive approach when entering into, renewing or extending franchise agreements to ensure that they provide franchisees with a reasonable opportunity to make a return on investment.