What Can Be Changed — And What Crosses the Line?
In a franchise system, consistency is crucial. But from time to time, a franchisor may need to make changes — whether to update fees, improve operational standards, or adapt to new regulations. The question is: can those changes be made unilaterally?
At Franchise Legal Partners, we guide franchisors through the fine legal balance between necessary system updates and impermissible contract variation.
What Is a Unilateral Variation?
A unilateral variation is when the franchisor changes a term of the Franchise Agreement without the franchisee’s express consent.
This might involve:
- Increasing franchise fees or royalties.
- Changing the duration of the agreement.
- Adding new obligations on the franchisee.
- Modifying key supply or marketing arrangements.
- Imposing new technology, systems, or processes.
Not all unilateral variations are unlawful — but they must be handled carefully, transparently, and within the limits of the law.
Legal Issues Around Unilateral Variation
Australian contract law generally requires mutual agreement to vary a contract. While Franchise Agreements may include clauses allowing variation, the Franchising Code of Conduct and principles of good faith limit how those powers can be used.
Key legal risks include:
❌ Breach of the Franchising Code of Conduct
Under the Code, franchisors must act in good faith in all dealings with franchisees. Forcing significant changes without consultation or notice may breach this obligation — especially if the change benefits the franchisor but harms the franchisee.
❌ Misuse of Contractual Power
Even if the agreement contains a variation clause, a franchisor may not use it in an unfair, capricious, or oppressive way. Courts have ruled against “absolute discretion” where it leads to unconscionable outcomes.
❌ Risk of Unconscionable Conduct
Under the Australian Consumer Law, conduct that is “harsh or oppressive to a degree that goes beyond hard commercial bargaining” may be deemed unconscionable — particularly where the franchisee had no real opportunity to negotiate or reject the change.
When Is Variation Permitted?
Unilateral variation may be lawful where:
- The Franchise Agreement expressly allows it.
- The change is minor, procedural, or beneficial.
- The variation is clearly communicated in advance.
- The change is made in good faith and with a legitimate business purpose.
- The franchisee is given a right to terminate or opt out if the change is material.
Common Variation Clauses We See
Franchise Agreements often include terms like:
“The franchisor may vary this agreement or any operations manual by notice to the franchisee.”
“The franchisor may from time to time modify the franchise system, provided the variation is not materially detrimental to the franchisee.”
These clauses are not blanket permissions. They are still subject to:
- The Franchising Code of Conduct.
- Australian Consumer Law (unfair contract terms).
- Common law principles of good faith and reasonableness.
At Franchise Legal Partners, we review your variation clauses to ensure they are enforceable, proportionate, and defensible.
How to Vary a Franchise Agreement Properly
Here’s the recommended approach for making lawful, low-risk changes:
1. Review the Agreement
Check whether the proposed change is covered by:
- A variation clause.
- The Operations Manual or supply agreement.
- A discretionary power within the agreement.
2. Assess Materiality
Ask:
- Will this change materially affect a franchisee’s financial or operational position?
- Could it reasonably be seen as unfair or unexpected?
If yes, it should not be made unilaterally — or at least, not without consultation.
3. Consult and Disclose
Even where variation is permitted:
- Notify franchisees in writing well in advance.
- Explain the reasons and commercial justification.
- Invite feedback or discussion.
This helps demonstrate transparency and good faith.
4. Offer Alternatives
If the change is significant, consider:
- Allowing franchisees to opt in.
- Offering a termination right or grandfathering of previous terms.
- Providing compensation or concessions where the change creates cost burdens.
5. Document the Variation
Use a Deed of Variation or written confirmation to:
- Clearly state the new terms.
- Show mutual agreement (where required).
- Ensure enforceability and reduce ambiguity.
How We Help Franchisors
At Franchise Legal Partners, we help you:
✔️ Draft enforceable and fair variation clauses.
✔️ Assess the legal risk of proposed changes.
✔️ Draft and implement Deeds of Variation.
✔️ Communicate changes transparently with franchisees.
✔️ Navigate disputes over variation.
✔️ Stay compliant with the Franchising Code and consumer law.
Variation Strategy for Growing Franchise Systems
As your franchise network evolves, variation may be necessary to:
- Update tech platforms.
- Align with new legislation.
- Improve profitability.
- Standardise processes across the network.
But changes should strengthen your system — not fracture trust.
We help build strategic frameworks for scalable, flexible, and legally sound variations across your franchise network.
Frequently Asked Questions
Can I increase franchise fees without the franchisee agreeing?
Only if:
- The agreement allows for it (e.g. CPI increases or fixed annual uplifts).
- The change is pre-agreed and formula-based.
Otherwise, it may require the franchisee’s consent or expose you to legal challenge.
Is it enough to include a “we may vary at our discretion” clause?
No. Broad discretion clauses may be ruled unenforceable, especially if:
- The variation is unexpected or harmful.
- The clause is not clearly explained.
- The clause causes an imbalance in rights and obligations.
What’s the difference between varying the Franchise Agreement and updating the Operations Manual?
The Franchise Agreement is a legally binding contract. The Operations Manual can often be updated more freely — but not if:
- It introduces major new obligations.
- It alters the financial deal.
It contradicts the Agreement.
What if a franchisee refuses to accept the variation?
If the variation requires mutual agreement, you may not be able to enforce it without their consent. In some cases, it may be a breach of the Code or even amount to repudiation of the contract.
Can variations ever be implied or informal?
No — variations should always be documented in writing, ideally via a Deed of Variation signed by both parties. Verbal or implied changes carry serious enforcement risks.
Can I apply a variation only to new franchisees?
Yes. New franchisees can be offered updated agreements as part of their onboarding. But changes to existing franchisees must follow a lawful variation process.
Need to Vary a Franchise Agreement the Right Way?
Before you issue a notice or implement a change, speak to our team.
Contact us today for a free consultation.
