Franchising Updates

Unfair Contract Terms Changes

Since November 2016, most franchise agreements have been subject to the unfair contract terms regime under the Australian Consumer Law. This regime allows the Courts to strike out terms in an agreement that are deemed unfair. In considering whether a term is unfair, several criteria are relevant, including whether the term creates a significant imbalance in the rights and obligations of the parties. For example, the right of a franchisor to change the terms of a franchise agreement without the consent of the franchisee is likely to be considered unfair.

From November 2023, the unfair contract terms regime has been expanded and strengthened. Among other things, the consequences of having unfair contract terms in a franchise agreement that is caught by the regime now include potential penalties in the maximum sum of $50M or more.

Recommendations

Due to the significant penalties that can apply, we recommend that all franchisors obtain legal advice in relation to:

• Their process in entering into franchise agreements, with a view to minimising the risk that a franchise agreement is subject to the unfair contract terms regime.

• The terms of their standard franchise agreement. These should be reviewed to identify any potentially unfair terms and discuss how they can be modified or whether they should be removed.