Contents
Franchising remains a popular way to run a business in 2025. However, the reality is that circumstances can change and agreements can come to an end. Getting out of a Franchise Agreement isn’t as simple as it might seem.
When you first entered a Franchise Agreement, you likely noticed the remarkable number of rules and regulations detailed within. These rules can be just as tricky at the end of the agreement. Whether your franchisor has breached the contract or you’re simply ready to walk away, it’s wise to speak to a lawyer before taking any steps. For additional guidance on your legal rights, you might also consider checking out our What To Do With A Bad Franchisee resource.
The legacy case of Holden’s withdrawal from the market remains a prominent example of how exit processes can become complex if franchising laws are not strictly adhered to. Although Holden ceased operations several years ago, its impact prompted significant revisions to the Franchising Code of Conduct. In recent years, updated guidelines have been implemented to ensure a fairer process for both franchisors and franchisees.
What Happened With Holden?
You might recall that General Motors decided to withdraw the Holden brand from the Australian and New Zealand markets. The decision was largely driven by changing market dynamics and concerns that the brand was no longer competitive domestically. However, the termination of those Franchise Agreements left many dealership owners facing significant financial challenges.
In response to the abrupt decision, a Senate Inquiry was launched, with dealership owners asserting that they were entitled to compensation. Although the original report was finalised in 2021, ongoing reviews and adjustments made in 2023 have ensured that compensation frameworks continue to protect franchisees in 2025.
Many submissions during the inquiry highlighted that dealers had invested significant resources in the brand-and often, investors were not adequately advised before making these commitments. This lack of proper disclosure has had lasting repercussions, reinforcing the need for clear and thorough pre-entry documents.
The ACCC has consistently emphasised that any concerns relating to adherence to the Franchising Code of Conduct and the provisions of the Australian Consumer Law must be taken seriously. As current analyses in 2025 suggest, falling short of these requirements can lead to significant regulatory intervention.
General Motors proposed a compensation package which provided that:
- Dealers could continue operations for an extended period (up to a 5‑year term);
- Dealers would be compensated for lost new sales over the remaining period of their agreement (approximately 2.5 years);
However, GM did not fully adhere to the established rules when attempting to exit these agreements. The ACCC intervened, noting that GM’s negotiations lacked the requisite good faith and did not furnish adequate disclosure of material facts, as mandated by the Franchising Code.
Although the case originally centred on Holden, it sparked a broader debate about the inherent imbalance in bargaining power between franchisors and franchisees. The experience has highlighted how franchisees can be vulnerable to sudden and unexpected losses, reinforcing the need to fully understand the termination clauses within your Franchise Agreement.
This underscores the importance of knowing all the details around termination. When an agreement ends, the subsequent steps and obligations are governed largely by its specific provisions. In 2025, many franchising disputes are resolved through mediation and collective dispute resolution processes. Engaging early with expert legal advice-such as insights available in our Contracts Guide and Industry Regulations-can help you avoid costly missteps.
Who Enforces The Rules Around Franchising?
When dealing with franchises, the two main sets of rules to follow are the Franchising Code of Conduct and the Australian Consumer Law. Both are enforced by the ACCC.
In other words, the ACCC can step in if the termination process isn’t conducted in accordance with these rules.
The Franchising Code covers various aspects, including:
- Disclosure requirements
- Good faith obligations
- Dispute resolution
- Cooling-off period
- Procedures for terminating a Franchise Agreement
Changes To The Franchising Code For Car Dealerships
On 1 June 2023, the Code was updated for new car dealership agreements – although these updates continue to apply in 2025. They are primarily relevant to dealerships specialising in new passenger vehicles and new light goods vehicles.
Both parties need to be aware of the following obligations when approaching the end of a Franchise Agreement:
End Of Term Obligations
Both the franchisor and franchisee must notify the other of their intentions as the Franchise Agreement draws to a close. This means communicating whether you intend to:
- Renew the agreement
- Enter a new agreement
- Terminate the existing agreement – in this case, the franchisor must provide a clear reason and a plan for winding up the business
Written notice must be provided at least 12 months before the term ends (or 6 months’ notice if the term has been effective for less than 12 months). Failure to comply with these notification requirements can result in penalties of up to $66,600.
Capital Expenditure
Unless special circumstances apply, franchisors cannot require franchisees to undertake ‘significant capital expenditure’ without prior discussion. The updated Code mandates that both parties discuss any proposed expenditure and that such expenditure only proceed with the franchisee’s consent.
This requirement should also be reflected in the Disclosure Document, detailing the nature, purpose, anticipated outcomes, and associated risks and benefits of the expenditure.
Dispute Resolution
Franchisors often have multiple franchisees facing similar issues. If more than one franchisee raises a dispute, the amended Code allows them to request that the franchisor address their disputes collectively-provided the issues are of a similar nature. This collective approach can lead to more consistent resolutions and helps protect franchisees from unfair practices.
So, What Are The Ways Franchise Agreements Can End?
The following are some of the main ways a Franchise Agreement can conclude:
- Expiration: the agreed franchising term has ended and the franchisee ceases operating the franchise business.
- Renewal: the franchisee exercises an option within the Agreement to renew after the initial term expires.
- Extension: the franchisor opts to extend the term of the Agreement – learn more about this process in our Extending A Franchise Term article.
- Termination: the Agreement is brought to an early end, whether mutually agreed or unilaterally initiated. Note that Franchise Agreements typically impose stricter conditions on franchisee-initiated termination.
There are other mechanisms as well, such as selling the franchise, transferring, or assigning it to a third party.
When Can The Franchisor Terminate The Agreement?
Franchisee Breach
Your Franchise Agreement contains numerous rules outlining what franchisees can and cannot do. If you fail to adhere to these rules, the Franchising Code of Conduct permits the franchisor to issue a Breach Notice.
A valid Breach Notice must:
- Be in writing;
- Clearly specify the breach of the Franchise Agreement;
- Set out the measures required to remedy the breach; and
- Provide a reasonable timeframe (generally no longer than 30 days) for the remedy.
If the franchisor intends to utilise the Breach Notice as grounds for termination, it must explicitly state that the Agreement will be terminated should the breach not be remedied within the specified period.
I’ve Been Issued A Breach Notice – How Do I Respond?
Receiving a Breach Notice is not an ideal situation, but it may occur. First, review the alleged breach carefully. If you believe it can be rectified, take the necessary steps to remedy the issue as outlined in the notice.
If you disagree with the breach or find its demands unreasonable, try to negotiate with the franchisor. As always, ensure that all communications are in writing so there is a documented paper trail. If no resolution can be reached, you may be able to invoke the dispute resolution provisions set out in both your Franchise Agreement and the Code.
Special Circumstances
Certain circumstances allow a franchisor to terminate the Agreement immediately without issuing a Breach Notice. For example, termination may occur if the franchisee:
- Walks away from the Agreement without explanation;
- Becomes insolvent or bankrupt;
- Endangers public health or safety;
- Engages in fraudulent behaviour; or
- Agrees to terminate the contract mutually.
What If The Franchisee Was Not In Breach?
A franchisor may still choose to terminate an Agreement unexpectedly even when no breach has occurred-similar to the GM example. In such cases, the franchisor must adhere to the Code’s requirements by providing reasonable notice and a clear reason for termination.
When Can The Franchisee Terminate The Agreement?
In general, franchisees have less flexibility to end a Franchise Agreement early without incurring exit fees or other penalties. That said, some Agreements do include clauses allowing for early termination by the franchisee-though these terms are typically less favourable.
Before entering any Agreement, it’s important to negotiate termination terms that provide balanced exit options. For more insights, you might review our detailed Terminating A Franchise Agreement guide.
Franchisor Breach
If the franchisor breaches the Agreement, you may have grounds to terminate it. Follow the dispute resolution process stipulated in both the Agreement and the Code. Bear in mind that successful termination due to franchisor breach depends on the strength of your evidence and legal position.
Cooling-Off Period
New Franchise Agreements typically include a 7‑day cooling-off period during which you can withdraw if you change your mind. This period, however, only applies to initial agreements and not to renewals or extensions. If exercised, the franchisor should refund any funds paid minus reasonable expenses incurred. Most Agreements specify the exact deductions that may apply.
Selling Your Franchise
Sometimes continuing to run the franchise no longer makes sense. Fortunately, the Code allows you to sell or transfer your business to a third party, although you’ll generally need the franchisor’s consent.
The process typically involves:
- Notifying the franchisor in writing of your intent to sell;
- Providing details about the prospective buyer, including their experience and financial capacity;
- Receiving consent from the franchisor, which-unless there is a pressing issue-should not be unreasonably withheld.
After obtaining consent, it’s highly recommended to consult a franchise lawyer to prepare the necessary sale documents, such as a Contract for Sale of Business or a Deed of Termination. If your franchise operates from leased premises, ensure you also coordinate with your landlord to transfer the lease.
What Happens After The Franchise Agreement Ends?
Typically, the Franchise Agreement will outline your post-termination rights and restrictions. For instance, you may be bound by a restraint of trade clause that prevents you from operating a similar business.
Other ongoing obligations might include duties to act in good faith-further details of which can be explored here.
Additional end-of-term issues could involve lease assignments or buyback provisions for stock and equipment. It’s essential to review these details well before your Agreement reaches its conclusion.
In the evolving franchising landscape of 2025, many franchisors and franchisees are now exploring more flexible exit strategies, such as partial transfers or hybrid business models. With recent regulatory adjustments to ensure fair practice, having a clear, legally vetted exit plan is more critical than ever.
Franchising Resources
Laws around franchising can be quite dense, and expert legal assistance is often required. We have a number of resources to guide you through various stages of the franchising process, such as:
- Selling A Franchise
- Legal Documents You Need For Franchising
- Franchise Agreements
- What Fees The Franchisee Has To Pay
- Terminating A Franchise Agreement
- What To Do With A Bad Franchisee
- Franchisees’ Legal Obligations
- What Are Franchising Royalties?
- Franchise Grant Process
Need Help?
It’s important that both parties fully understand their obligations when exiting a Franchise Agreement, as well as the consequences that follow termination.
If you have decided to end your Franchise Agreement or sell your business, our team of lawyers is ready to help you navigate your options. Whether you need guidance on your rights to exit early, terminating the Agreement due to a breach, or handling the sale of your franchise, we’re here for an obligation-free chat. For more information, you may also wish to explore our Business Set-Up and Intellectual Property guides.
You can reach out to us at team@sprintlaw.com.au or call us on 1800 730 617 for a free initial consultation.
Editor’s note: The information in this article is current as of 2025. With the recent changes to the Franchising Code of Conduct effective from 1 July 2025, we recommend speaking with a lawyer to fully understand your options in today’s dynamic franchising environment.
Meet some of our Franchising Lawyers
Get in touch now!
We'll get back to you within 1 business day.
Top 3 Legal Mistakes
Book in a free consultation with us to discuss your legal needs.