As you should know there are no specific franchising laws in New Zealand but there are laws which protect franchising. Those are the Fair Trading Act 1986, the Commerce Act 1986 and the Contract and Commercial law Act 2017. Those Acts focus, in particular, on misrepresentations and restrictive trade practices including anti-competitive behaviour.
The latest Survey in 2024 showed that there are at least 546 franchise systems which on a per capita basis makes New Zealand the most franchised country in the world. The results showed that the sector’s revenue has risen by NZ$10.4 billion to NZ$47.4 billion which is equivalent to 11% of New Zealand’s GDP. The adoption of modern technologies including AI is becoming essential, with 72% of the respondents either using or planning to implement AI.
The Franchise Association of New Zealand (FANZ) which was formed in 1996 has many members who must abide by the Code of Practice and Ethics. This combined Code became mandatory from 1 December 2024 and before then, there were two separate Codes.
The Code of the FANZ covers standards of conduct and ethics, continuing compliance, a mandatory requirement for all franchise agreements to require observance of the Code, document compliance checks, cooling-off, dispute resolution, certification, affiliate members and disclosure documents.
As you would expect, the disclosure document must contain details of the franchisor and its directors, including experience; details of any bankruptcies, receiverships or liquidations; details of criminal, civil or administrative proceedings within the last five years; a summary of the main particulars and features of franchise; a list of components making up the franchise purchase; details of any financial requirements by the franchisor and the franchisee; and other information as listed in the Code.
Franchising in New Zealand covers goods and services in many areas including general retail, leisure and education, business and commercial, food and beverage, health and fitness, computer and technology, home and building services.
Almost all franchise agreements contain non-compete clauses whereby a franchisee who is either terminated for default before the end of the term or leaves the system voluntarily is bound by a restraint of trade which means that the franchisee cannot compete with the franchisor in a similar business for a period of time and within a designated area. If the non-compete clause is unreasonable then the court can interfere and, most helpfully, section 83 of the Contract and Commercial Law Act 2017 states as follows:
“83 Restraints of trade
- The court may, if a provision of a contract constitutes an unreasonable restraint of trade,—
- delete the provision and give effect to the contract as amended; or
- modify the provision so that, at the time the contract was entered into, the provision as modified would have been reasonable, and give effect to the contract as modified; or
- decline to enforce the contract if the deletion or modification of the provision would so alter the bargain between the parties that it would be unreasonable to allow the contract to stand.
- The court may modify a provision even if the modification cannot be effected by deleting words from the provision.”
The ability of the courts to modify excessive restraints is constrained by the principle that terms that could never have been considered reasonable will not be modified, for to do so would be contrary to the public interest. This is the doctrine of restraints that are in terrorem, which translates into contracts that terrorise a contracting party.
Like Australia, we also have unfair contract terms and unconscionable conduct although both have not yet been tested in the courts.
In conclusion, it is essential in franchising for both parties to obtain independent legal advice, especially a prospective franchisee going into an existing franchise system. New Zealand is very attractive for franchising and many systems from Australia have entered the market. International franchising is thriving and we have systems arriving from USA, Canada, the United Kingdom, as well as Australia.
Stewart Germann
Franchising Lawyer
Auckland
New Zealand