New Zealand does not have franchise-specific legislation. Unlike Australia, there is no mandatory disclosure document, no cooling-off period prescribed by statute and no franchising code with the force of law.
That absence is the single most important fact for a prospective franchisee. Your protection comes from what you check before signing and what the agreement says, because there is no regulator holding a safety net underneath.
What law does apply
General law still bites:
- Fair Trading Act — misleading or deceptive conduct in the lead-up to the agreement is actionable, and unsubstantiated representations about likely earnings are a live risk area for franchisors.
- Contract and Commercial Law Act — misrepresentation and contractual remedies.
- Commerce Act — restrictive trade practices, relevant to some territory and supply arrangements.
- Unfair contract terms provisions, which can apply to standard form small trade contracts.
The Franchise Association of New Zealand operates a voluntary code for members, which includes disclosure and a cooling-off period. Membership is voluntary, so check whether the franchisor is actually a member rather than assuming.
Financial due diligence
The questions to answer before any money moves:
- What are the total establishment costs — franchise fee, fitout, equipment, initial stock, training, working capital? The advertised fee is rarely the total.
- What are the ongoing fees — royalty, marketing levy, technology fees, mandatory supplier margins? Model these against realistic revenue rather than the franchisor’s illustration.
- Where do supplies come from and at what price? Mandatory supply at above-market prices is a common way margin is extracted, and it is not always visible in the fee schedule.
- What do existing franchisees actually earn? Ask to speak to a list you select, not one the franchisor curates, and include former franchisees.
- How many outlets have closed or changed hands in the last three years, and why? High churn is the clearest warning signal available.
Have an accountant with franchise experience model the numbers. A system that works at the franchisor’s illustrated revenue and fails ten percent below it is a system with no margin for a difficult year.
The agreement clauses that matter most
Term and renewal. How long, on what terms does it renew, and what does renewal cost? A term shorter than the period needed to recover your fitout investment is a structural problem.
Territory. Is it exclusive? Can the franchisor open another outlet nearby, or sell online into your area? Online channels have made territory protection considerably less meaningful than franchisees often assume, and the clause should address it explicitly.
Termination. What can the franchisor terminate for, with what notice and cure rights? And critically, what can you terminate for? Many agreements are asymmetric to a degree that surprises people who did not read carefully.
Exit and sale. Can you sell the business? What approval is required, on what criteria, and what fee is payable on transfer? A business you cannot sell has no exit value, however profitable.
Restraint of trade after termination — duration, geography and scope. As with employment restraints, these must be reasonable to be enforceable, but a broad one will still constrain you practically while you argue about it.
Obligations on you — minimum performance targets, mandatory refurbishment at intervals, system changes you must fund, hours of operation.
What happens at the end. Who owns the customer list, the phone number, the lease? Franchisees who built the local goodwill and discover it transfers to the franchisor at expiry have a hard lesson.
The lease question
Where the franchisor holds the head lease and you occupy under a sublease or licence, your occupation ends when the franchise agreement does — and possibly when the franchisor’s head lease does. Understand which arrangement you are in, because it determines whether you have a business independent of the franchise.
Process before signing
- Get the agreement reviewed by a lawyer with genuine franchising experience, not general commercial experience.
- Talk to at least five current franchisees you selected and two former ones.
- Work in an outlet for a period if the franchisor will allow it.
- Model the financials independently, including a downside case.
- Search the Companies Office for the franchisor entity and its directors’ history.
- Do not sign under time pressure. Urgency is a sales technique, and a franchisor unwilling to give you time to take advice is telling you something.
The Commerce Commission publishes Fair Trading Act guidance relevant to franchise representations, business.govt.nz publishes buying-a-business material, and the Franchise Association publishes its voluntary code.
General information only, not legal advice. Have any franchise agreement independently reviewed.
