Further Amendments to the Franchising Code of Conduct: Reasonable Opportunities for Return on Investment

On 1 November 2025, the final amendments to the Competition and Consumer (Industry Codes—Franchising) Regulations 2024 (New Code) will come into effect, introducing a new requirement that franchisors must ensure that franchisees have a reasonable opportunity to achieve a return on investment (ROI).

Legislative Change

Under the New Code, franchisors will be prohibited from entering into franchise agreements “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 a part of entering into, or under, the agreement”.

The investment may include any expenses the franchisee incurs relating to initial capital, ongoing fees and any other financial commitment that a franchisor may require.

Whilst this is not a guarantee of profitability, franchisors must demonstrate that the franchise model is viable and offers franchisees a fair and reasonable opportunity to recover their required investment.

What Does “Reasonable Opportunity” Mean?

The New Code does not explicitly define “reasonable opportunity”.  This will depend on the industry, investment size, operating model, franchisee effort, and external market conditions.  This creates some uncertainty – and potential disputes – if ROI expectations are not clearly defined.

Implications for Franchisors

• Increased accountability: Franchisors must be able to justify their model, financial assumptions and site selection processes.
• Disclosure requirements: Capital expenditure and fund use must be explained fully so that franchisees can properly assess ROI prospects.
• Risk of disputes: Because ROI is open to interpretation, franchisees may challenge whether they truly had a “reasonable opportunity”.

Practical Tips for Franchisors

1. Due Diligence and Documentation

Franchisors must undertake due diligence to demonstrate that there will be a reasonable opportunity for ROI prior to entering into a new franchise agreement with a prospective franchisee. Franchisors should consider documenting upfront any key assumptions, and other factors such as site selection and market and territory allocation.  ROI assumptions should be based on credible data, including sensitivity testing.

2. Clear Definition of ROI

It is important to clearly define how ROI will be assessed in franchise agreements. This may include the amount of time it may take to breakeven or turn a profit, or the level of involvement that a franchisee must have within the business to meet these targets.

3. Review Franchise Agreement Structure and Disclosure Documents

Greater transparency within the structure of the franchise agreement particularly around capital outlay, risks, and support obligations will be important to not only ensure compliance with the New Code, but also to facilitate giving the franchisee a reasonable opportunity to make an ROI.

What the Change Does Not Mean

The New Code does not impose a guarantee of profitability, only that a reasonable opportunity must exist.  Franchisees will still bear the business risk.

It does not automatically excuse poor performance – if a franchisee fails to hit targets because of poor management or they do not meet the operational standards in circumstances where the model was sound and disclosed, the franchisor may not be held accountable.

Key Takeaway

The ROI obligation is designed to protect franchisees, but it also presents an opportunity for franchisors to build stronger, more sustainable networks.  By preparing now, franchisors can reduce the likelihood of disputes, strengthen trust, and ensure their model stands up to regulatory scrutiny.

If you need assistance with updating your agreements and disclosure documents to comply with the changes to the Code, please contact our experienced Franchise Lawyers.