Buying a NZ Franchise: Check the Premises Lease

For a premises-based franchise, the right to use the brand and the right to occupy the site are separate matters. A suitable location can still become a costly commitment if its lease does not work alongside the franchise agreement. Before joining New Zealand’s franchising community, establish exactly how you will occupy the premises, what that occupation costs and what happens if either agreement ends.

1. Establish who controls the premises

Start by asking who is named as tenant. You might lease directly from the landlord, take an assignment of the seller’s lease, or occupy under a sublease or licence granted by the franchisor. These arrangements do not give you identical rights.

If you are buying an existing outlet, obtain the complete signed lease, all variations, renewal documents and any relevant landlord notices. Do not rely on a lease summary or the seller’s description of the rent.

Ask your lawyer to establish:

• Your legal position: will you become the tenant, subtenant or licensee?
• Required approvals: whose consent is needed for you to take occupation?
• Outstanding issues: are there rent arrears, alleged breaches or unresolved landlord disputes?
• Permitted use: does the lease allow the actual activities required by the franchise model?
• Operational restrictions: are trading hours, deliveries, signage or access restricted?

Where the franchisor holds the head lease, request the relevant head-lease documents as well as your proposed occupancy agreement. Ask what happens to your occupation if the franchisor’s lease ends. A promise of a franchise term does not, by itself, secure the premises for that period.

2. Match the lease timetable to the franchise timetable

Put the lease and franchise dates on one page. Include commencement dates, expiry dates, renewal notice deadlines and any break rights. For an existing outlet, focus on the remaining lease term rather than its original length.

A mismatch can create risk in either direction. If the lease expires first, you may still have franchise obligations without a secure site. If the franchise ends first, you may remain responsible for rent while no longer having permission to trade under the brand.

Check whether lease renewal rights are available to you following an assignment and what conditions must be satisfied. Do not treat an option as automatic: notice deadlines and compliance requirements matter.

Also examine any redevelopment, demolition or relocation clauses. Ask who can trigger them, how much notice is required and who pays the resulting costs. Franchisor approval of a location does not remove these contractual risks.

Have your lawyer identify practical solutions before commitment. Depending on the deal, these might include revised dates, a negotiated break clause or documented arrangements between landlord, franchisor and franchisee. None should be assumed to exist without agreement.

3. Calculate the full occupancy commitment

Base rent is only one part of the cost. Request the current outgoings budget, recent reconciliations and details of any outstanding charges. Your accountant should distinguish recurring expenses from deposits and other cash tied up at the outset.

Review the lease for:

• Rent review dates and mechanisms, including market reviews and provisions that prevent rent falling.
• Outgoings payable by the tenant, such as rates, building insurance and common-area costs.
• Repair and maintenance obligations, including responsibility for building services.
• Bonds, advance rent and any required security.
• End-of-lease reinstatement or “make good” obligations.

Model the payments actually required, including their GST treatment and timing. For example, a rent-free period may not excuse outgoings and may be subject to conditions.

Pay particular attention to the condition in which you must return the premises. You could inherit obligations concerning alterations made by a previous operator. Obtain a condition record and ask your lawyer whether the lease makes you responsible for removing those alterations or repairing existing defects. The purchase price alone will not reveal that exposure.

4. Understand the legal framework and exit position

New Zealand has no franchise-specific statute, compulsory franchise registration system or universal statutory franchise disclosure regime. The Franchise Association of New Zealand’s Code of Practice applies to its members; it is not legislation applying to every franchisor.

General contract law applies, while the Fair Trading Act 1986 addresses matters including misleading or deceptive conduct. Commercial leases are also subject to relevant provisions of the Property Law Act 2007. Ask your lawyer how these rules affect the particular documents rather than assuming franchise protections override lease obligations.

Finally, check how you can leave. Landlord consent to an assignment and franchisor approval of a buyer are separate requirements. Ask whether you would retain any liability after assignment, and whether ending the franchise would affect the lease at all.

Practical takeaway: before signing, obtain a written review of who controls the premises, how the two agreements align, the full occupancy cost and your remaining liabilities on exit. Buy the franchise only once the site commitment makes sense alongside it.