Understanding Franchise Agreement Termination

Updated 17 May 2025

Franchising can be a rewarding experience that provides benefits for both the franchisor and the franchisee. But what if either the franchisor or the franchisee wants to end the relationship before the franchise agreement expires?

Under the terms of a franchise agreement, a franchisee is given the right to operate the franchise business for a period of time. When the time period expires, the franchise agreement "expires". [What is a Franchise Agreement?]

If the franchise agreement ends before it expires, this is generally referred to as "termination".

Franchise agreement termination is a complex area, which has increased in complexity since the introduction of the new Franchising Code in April 2025.

A franchisor can terminate a franchise agreement early (that is, before the franchise agreement expires), if the franchisor follows the procedures set out in the franchise agreement and the applicable Franchising Code of Conduct (the Franchising Code). [What is the Franchising Code of Conduct?]

There are less options for franchisees to terminate a franchise agreement early because franchise agreements do not generally allow a franchisee to simply terminate the franchise agreement. If a franchise agreement contains provisions allowing a franchisee to terminate the franchise agreement, a franchisee can terminate a franchise agreement early if the franchisee follows the provisions set out in the franchise agreement.

There are also limited circumstances where a franchisor or franchisee can terminate a franchise agreement at 'common law'. We have not dealt with these circumstances in this article.

Termination Under the Franchising Code of Conduct
Termination Clauses in Franchise Agreements
Legal Procedures for Terminating A Franchise Agreement

What are the Termination provisions in the Franchising Code of Conduct?

The termination provisions in the Franchising Code are contained in section 54, section 55, section 56, section 57 and section 58 (applicable to franchise agreements entered into after 1 April 2025). 

While a franchise agreement sets out the terms agreed between the franchisor and the franchisee, the terms of the franchise agreement must also comply with the applicable Franchising Code.

The new Franchising Code came into effect on 1 April 2025, but is only applicable to franchise agreements entered into after 1 April 2025. For franchise agreements entered into before 1 April 2025 (but after 1 July 2021), the termination provisions of the pre April 2025 Franchising Code apply.  For any longer franchise agreements that were entered into before 1 July 2021, the pre July 2021 Franchising Code still applies.

Historically, franchise agreements allowed the franchisor (but not the franchisee) to terminate the franchise agreement early. Consequently, the Franchising Code introduced some termination provisons for franchisees, such as section 54 (previously clause 26 which was introduced in July 2021) which allows a franchisee to propose termination at any time.

If either a franchisor or a franchisee attempts to terminate a franchise agreement in a way that is not allowed by the Franchising Code, the termination will not be valid and there may be financial consequences.

Pre April 2025 Franchising Code Termination Provisions

The following provisions are applicable to franchise agreements entered into after 1 July 2021 but before 1 April 2025.

Clause 26 of the previous Franchising Code

Clause 26 of the previous Franchising Code sets out a number of ways that a franchisee may be able to terminate a franchise agreement, including:

• by cooling off; [What is cooling off under the Franchising Code?] and
• by negotiating a termination of the franchise agreement with the franchisor under clause 26B. 

Clause 27 of the previous Franchising Code

Clause 27 of the previous Franchising Code sets out the process that a franchisor must follow if the franchisor wishes to terminate the franchise agreement early, on the basis that the franchisee has breached a term or terms of the franchise agreement.

Briefly, under clause 27 of the previous Franchising Code a franchisor must:

• give the franchisee reasonable notice in writing that the franchisor proposes to terminate the franchise agreement (this happens generally by way of a notice to remedy breach) [What is a Franchise Breach Notice?];
• tell the franchisee what the franchisor requires to be done to remedy the breach; and
• allow the franchisee a reasonable time to remedy the breach.

Clause 28 of the previous Franchising Code

Clause 28 of the previous Franchising Code allows a franchisor to terminate a franchise agreement if:

• the franchisee has not breached the franchise agreement;
• the franchisee has not consented to the termination of the franchise agreement; and
• the franchisor terminates the franchise agreement in accordance with the franchise agreement.

Under clause 28(3) of the previous Franchising Code before terminating the franchise agreement, the franchisor must give the franchisee reasonable written notice of the proposed termination and the reasons for it.

Clause 29 of the previous Franchising Code 

Clause 29 of the previous Franchising Code details the process that a franchisor must follow to terminate a franchise agreement on one of the particular grounds set out in clause 29. The particular grounds include:

• the franchisee no longer holds a licence that the franchisee must hold to carry on the franchised business (clause 29(1)(a) Franchising Code);
• the franchisee becomes bankrupt, an insolvent under administration or a Chapter 5 body corporate (clause 29(1)(b) Franchising Code);
• the franchisee is a company that is deregistered by the Australian Securities and Investments Commission (clause 29(1)(c) Franchising Code);
• the franchisee voluntarily abandons the franchised business or the franchise relationship (clause 29(1)(d) Franchising Code);
• the franchisee is convicted of a serious offence (clause 29(1)(e) Franchising Code);
• the franchisee operates the franchised business in a way that endangers public health or safety (clause 29(1)(f) Franchising Code);
• the franchisee acts fraudulently in connection with the operation of the franchised business (clause 29(1)(g) Franchising Code).

Franchise Agreements entered into after July 2021

For franchise agreements entered into after July 2021, the franchisor must provide 7 days written notice to the franchisee, if the franchisor wishes to terminate a franchise agreement in one of the circumstances set out above. 

In addition, for franchise agreements entered into after July 2021, if the franchisee disputes the grounds of the proposed termination, the franchisee may notify the franchisor of the dispute and commence the dispute resolution process (clause 29(4) Franchising Code).

If there is a dispute raised, the franchisor cannot terminate the franchise agreement until after the end of 28 days from the provision of the proposed  termination notice.**

Franchise Agreements entered into before July 2021

For franchise agreements entered into before July 2021, clause 29 of the Franchising Code of Conduct in force from 1 June 2020 applies (the 2020 Franchising Code). Clause 29 of the 2020 Franchising Code allows a franchise agreement to be terminated immediately in special circumstances. The special circumstances set out in clause 29 of the 2020 Franchising Code are similar to the "particular grounds" set out above.  

Current Franchising Code Termination Provisions

The following provisions are applicable to franchise agreements entered into after 1 April 2025. 

Section 50 - Termination by franchisee - cooling off periods for new franchise agreements

Under section 50 of the Franchising Code, a franchisee can terminate a franchise agreement within 14 days after entering into the franchise agreement (unless in the limited circumstances that are applicable, the franchisee has given the franchisor written notice opting out of the franchisee's cooling off rights).

In addition, if the franchise business is being operated from a site, in certain circumstances set out in section 50(3) and section 50(4), a franchisee may terminate the franchise agreement within 14 days after entering into the lease or other occupancy right.

Section 54 - Franchisee may propose termination at any time

Section 54 of the Franchising Code sets out the provisions contained in the previous clause 26B. 

Section 54 provides that a franchisee may at any time during the term of the franchise agreement, give the franchisor a written proposal for termination of their franchise agreement on the terms specified in the proposal.

While the franchisor is not required to agree to the proposal, the franchisor must provide the franchisee with a substantive written response to the proposal within 28 days. If the franchiee's proposal is refused, the franchisor must include reasons for the refusal.

Section 54 is a civil penalty section.

Section 55 - Termination by franchisor - breach by franchisee

Section 55 of the Franchising Code sets out the provisions contained in the previous clause 27.

Under section 55 the franchisor must, give the franchisee a written notice that:

(a) the franchisor proposes to terminate the franchise agreement because of a breach;

(b) the things the franchisor requires to be done to remedy the breach;

(c) the time (which must be a reasonable time, but need not be more than 30 days after the date of the notice), within which the franchisor requires those things to be done.

Section 56 - Termination by franchisor - no breach by franchisee 

Section 56 of the Franchising Code sets out the provisions contained in the previous clause 28.

Section 56 of the Franchising Code allows a franchisor to terminate a franchise agreement if:

• the franchisee has not breached the franchise agreement;
• the franchisee has not consented to the termination of the franchise agreement; and
• the franchisor terminates the franchise agreement in accordance with the franchise agreement.

Under section 56(3) before terminating the franchise agreement, the franchisor must give the franchisee reasonable written notice of the proposed termination and the reasons for it.

Section 57 - Termination by franchisor with 7 days' notice on grounds for which franchisee may not notify dispute

Section 57 of the Franchising Code marks a departure from clause 29 of the previous Franchising Code.

Section 57 provides that a franchisor may terminate a franchise agreement (by giving 7 days' written notice of the proposed termination and the ground for it) on the following grounds (if the franchise agreement gives the franchisor the power to do so):

(a) the franchisee no longer holds a licence that the franchisee must hold to carry on the franchised business;

(b) the franchisee becomes bankrupt, insolvent under administration or a Chapter 5 body corporate;

(c) the franchisee is a company that is deregistered by the Australian Securities and Investments Commission;

(d) in proceedings for an order in relation to a Fair Work serious contravention of a Fair Work civil remedy provision, a court is satisfied that the franchisee has committed that serious contravention;

(e) in proceedings for a civil penalty order in relation to a contravention of section 245AAA, s245AAB or s245AAC of the Migration Act 1958, a court is satisfied that the franchisee has contravened the section concerned;

(f) the franchisee is convicted of a serious offence;

(g) the franchisee is convicted of an offence against section 245AAA, section 245AAB, or section 245AAC of the Migration Act 1958.

 Unlike clause 29 of the previous Franchising Code, there is no alternative dispute resolution process applicable to section 57 and the franchisee cannot notify the franchisor of a dispute in relation to the grounds for termination.

Section 58 - Termination by franchisor on grounds for which franchisee may notify dispute

 Section 58 of the Franchising Code applies if a franchise agreement gives the franchisor power to terminate the franchise agreement on any of the following grounds:

(a) the franchisee voluntarily abandons the franchised business or the franchise relationship;

(b) the franchisee operates the franchised business in a way that endangers public health and safety;

(c) the franchisee acts fraudulently in connection with the operation of the franchised business.

The franchisor must give the franchisee a written termination notice which includes the ground for the proposed termination.

The franchisor must not terminate the franchise agreement before:

(a) 7 days after day the franchisor gives the franchisee the proposed termination notice, if the franchisee does not notify the franchisor of a dispute in relation to the proposed termination;

(b) 28 days after the franchisee gives the franchisor a dispute notice, if the franchisee notifies the franchisor of a dispute in realtion to the proposed termination. 

What Termination Clauses are generally in Franchise Agreements?

In addition to the Franchising Code, in order to be able to terminate a franchise agreement early, the franchise agreement must contain a clause that allows either the franchisor or the franchisee to terminate the franchise agreement early. 

Termination Clauses for Breach

A breach of a franchise agreement occurs when one party to the franchise agreement fails to perform their obligations under the franchise agreement without a lawful excuse. 

Franchise agreements will generally include a clause which allows a franchisor to terminate the franchise agreement if:

• the franchisee has breached a clause of the franchise agreement;
• the franchisor has notified the franchisee in writing that the franchisee has breached the franchise agreement;
• the franchisor has given the franchisee a reasonable time period to remedy the breach. A reasonable period is a period not exceeding 30 days (for a discussion about reasonable cure periods, please refer to our resource page Breach Notices);
• the franchisee has failed or refused to remedy the breach.

It is rare to find a franchise agreement which allows a franchisee to terminate the franchise agreement for a minor breach of the franchise agreement by the franchisor.

Some franchise agreements, may include a clause that allows a franchisee to terminate the franchise agreement if:

• the franchisor has breached a material clause of the franchise agreement (for a discussion about the different types of breaches please refer to our resource page Breach Notices);
• the franchisee has notified the franchisor in writing that the franchisor has breached the franchise agreement;
• the franchisee has given the franchisor a reasonable time period to remedy the breach;
• the franchisor has failed or refused to remedy the breach.

Termination Clauses on Specified Grounds 

Some franchise agreements include a clause or clauses that allow the franchisor to terminate the franchise agreement even if the franchisee hasn't breached the franchise agreement.

For example, a franchise agreement may provide that the franchisor can terminate the franchise agreement if the franchisee does not complete initial training to the satisfaction of the franchisor. 

These type of termination clauses are subject to section 56 of the Franchising Code and consequently, a franchisor must give reasonable written notice of the proposed termination and the reasons for it to the franchisee.

Some franchise agreements provide that the franchisor can terminate the franchise agreement by giving the franchisee a reasonable period of notice (for example the franchisor can terminate the franchise agreement at any time on three months' notice). It is our view that if the franchisee does not have a similar right under the terms of the franchise agreement, it is likely that these type of termination terms will be unfair. Consequently, if the franchise agreement is a standard form contract, [What is a standard form contract?], then the unfair contract terms regime is likely to apply [What are unfair contract terms?].

Termination Clauses that Relate to Particular Grounds

Generally franchise agreements include a clause which allows the franchisor to terminate the franchise agreement for the particular grounds set out in section 57 and section 58 of the Franchising Code (we have set these grounds out above). 

These type of termination clauses are subject to section 57 and section 58 of the Franchising Code. The process that a franchisor is required to follow if terminating a franchise agreement under this type of clause will depend on when the franchise agreement was entered into.

Cooling Off Clauses

A franchise agreement will contain clauses that allow both the franchisee and the franchisor to cool off after the franchise agreement is entered into.

A franchisee's rights to 'cool off' will be subject to the franchisee's cooling off rights set out in section 50 of the Franchising Code. 

What Are The Legal Procedures for Terminating a Franchise Agreement?

Terminating a franchise agreement involves following specific legal procedures. The exact procedures may vary depending on the terms outlined in the franchise agreement and the provisions of the Franchising Code.

Some common legal procedures for terminating a franchise agreement include:

Issuing a Notice to Remedy Breach

Franchisor Issues Notice to Remedy Breach

If a franchisor proposes to terminate the franchise agreement as a result of a breach of the franchise agreement by a franchisee, the franchisor must first issue a valid notice to remedy breach.

In most cases, the franchise agreement will allow for a cure period, during which the franchisee has the opportunity to remedy the breach or non-compliance. Under the terms of the Franchising Code, the cure period must be "reasonable". section 55(2) of the Franchising Code provides that a franchisor does not have to allow a franchisee more than 30 days to remedy the breach.

If the franchisee does not remedy the breach, the franchisor may then issue a termination notice.

Franchisee Issues Notice to Remedy Breach

If a franchise agreement includes a term allowing a franchisee to terminate the franchise agreement for breach by the franchisor, and a franchisee proposes to terminate the franchise agreement, the franchisee must issue a valid notice to remedy breach.

The franchise agreement should set out the period during which the franchisor has the opportunity to remedy the breach.

If the franchisor does not remedy the breach, the franchisee may then issue a termination notice.

Issuing A Notice of Termination

If either a franchisor or a franchisee proposes to terminate a franchise agreement, they must provide written notice to the other party, stating the reasons for termination and the effective date. 

Alternative Dispute Resolution

If disputes arise during the termination process, the parties may choose to engage in mediation or conciliation  to resolve the issues. 

The alternative dispute resolution process is particularly important if a franchisor proposes to terminate a franchise agreement under section 58 of the Franchising Code or clause 29 of the previous Franchising Code. 

For a further discussion about the current alternative dispute resolution process under the Franchising Code, see our article Franchising Code Amendments - Dispute Resolution.

Takeaways

Understanding the termination clauses detailed in the Franchising Code is important for both franchisors and franchisees.

By following the specific legal procedures and requirements, parties can navigate the process of terminating a franchise agreement effectively.

Whether it involves issuing a valid notice to remedy breach, providing written notice of termination, or engaging in alternative dispute resolution, adherence to these steps is essential.

**As a result of the complexity of the termination process after July 2021, the 2023 Independent Review of the Franchising Code has recommended that the termination process under the Franchising Code be simplified. The federal government has agreed in principle to do so.

Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.