Thinking of Buying a Franchise? Thinking of Buying a Franchise? Read This Before You Sign Anything
Abdelrahman Abdeltawab
Trainee Solicitor
Nando’s entered the Australian market on a classic franchise model. As agreements reached their first renewal point, the franchisor required franchisees to carry out extensive refurbishments, often costed at A$150,000–A$500,000 per restaurant. Those who could not finance the upgrades found their agreements left to expire; Nando’s then relied on contractual step-in rights to take over the outlets. Within a few years, around 50 per cent of Australian stores had shifted from franchisee to company ownership.
Franchisees alleged that:
- The franchisor imposed refurbishment obligations with little notice or commercial negotiation.
- The franchisor exercised renewal decisions at their sole discretion.
- Compensation on exit ignored the goodwill they had built.
Several commenced proceedings claiming breach of contract, lack of good faith and unconscionable conduct.
Why the Outcome Was So Stark
Australia’s Franchising Code of Conduct (a schedule to the Competition and Consumer Act) gives franchisees statutory tools: mandatory disclosure, a good-faith obligation and the right to complain to the ACCC. Yet even under this framework, the franchisor enforced their contractual rights once the refurbishment condition triggered.
The UK Contrast: No Franchise Statute, Heavier Reliance on the Contract
The UK has no dedicated franchising statute. Apart from general consumer-protection rules (which largely don’t apply to B2B franchising), the written agreement governs the relationship almost entirely. Key points:
| Issue | Australia (post-Code) | United Kingdom |
| Pre-contract disclosure | Codified, mandatory | Voluntary (BFA guidelines) |
| Good-faith duties | Implied by statute & case-law | Limited; depends on drafting |
| Renewal & refurbishment | Must be disclosed and exercised in good faith, but still contractual | Purely contractual; no statutory oversight |
| Regulatory recourse | ACCC, civil penalties | None specific to franchising |
Risks UK Franchisees Should Note
- Renewal at discretion – a clause allowing the franchisor to withhold renewal unless refurbishment is completed can place the entire investment at risk.
- Open-ended refurbishment wording – “as reasonably required” can legitimise expensive upgrades with no cost cap.
- Step-in or option deeds – rights enabling the franchisor to take over the lease on expiry or termination can strip out a franchisee’s residual value.
- Goodwill valuation – unless expressly included, goodwill is often excluded from exit calculations.
Sensible Steps Before You Sign
- Interrogate refurbishment clauses: seek cost ranges, objective triggers and reasonable notice periods.
- Tie renewal rights to clear performance metrics – not discretionary language.
- Address goodwill explicitly in any buy-back or step-in formula.
- Secure independent legal review: in the UK system, the written contract is your primary – often only – protection.
Conclusion
The Nando’s experience shows that even in a jurisdiction with a franchising code, contractual levers can shift value rapidly from franchisee to franchisor. In the UK, where statutory safeguards are lighter, the need for thorough due-diligence and skilful negotiation is greater still.
GOOD LAW INTL® advises prospective and existing franchisees on structuring, negotiating and, where necessary, challenging franchise terms. To discuss a proposed agreement or a renewal scenario, please contact our team.
For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.
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