Buying a NZ Franchise: Check Your Future Resale Rights

Buying a franchise means planning how you might eventually leave it. A profitable business is not necessarily easy to sell: your agreement may restrict buyers, impose transfer costs or leave you liable after a handover. Before joining New Zealand’s franchise community, check whether the proposed contract gives you a workable route to resale.

1. Establish what you can sell and who must approve

A franchise resale involves more than finding someone willing to buy your equipment and goodwill. The incoming owner also needs the right to operate under the brand. Your franchise agreement should explain whether that happens through an assignment of your agreement or a new agreement with the franchisor.

Ask your franchise lawyer to identify:

• Whether the franchisor’s written consent is required.
• The criteria an incoming buyer must meet, including financial resources and operating experience.
• Whether consent can be withheld at the franchisor’s discretion or must not be unreasonably withheld.
• Any deadline for responding to a complete approval application.
• Whether you must settle outstanding breaches before approval.
• Any right of first refusal allowing the franchisor to match a proposed sale.

A requirement to obtain consent without clear criteria or response times creates uncertainty. Ask what information makes an application complete and who decides whether the buyer is suitable.

Also check the term available to your buyer. Someone acquiring only the remaining years of your agreement may value the opportunity differently from someone offered a fresh term. Do not assume a resale automatically restarts the franchise clock.

2. Calculate the cost of getting out

The advertised transfer fee may be only one part of your exit bill. Read the transfer clause alongside provisions on refurbishment, equipment, legal costs and outstanding payments.

Request a written explanation of which costs could arise on resale, how they are calculated and who pays them. Depending on the agreement, these might include:

• A transfer or administration fee.
• The franchisor’s legal and buyer-assessment costs.
• Training charges for the incoming owner.
• Required upgrades to premises, signage or technology.
• Brokerage and your own professional fees.
• Repayment of your business borrowing and any associated charges.

Ask whether a refurbishment can be required specifically because ownership changes, even if the current fit-out remains serviceable. An uncapped obligation could make your eventual net proceeds difficult to predict.

Have your accountant prepare a simple exit calculation: expected sale proceeds less debt, transaction costs, contractual charges and any applicable tax. Use a cautious sale assumption rather than treating your original purchase price as recoverable.

Discuss who carries these costs if a proposed transaction falls through. A buyer withdrawing does not necessarily remove your obligation to pay assessment or legal fees already incurred.

3. Understand the New Zealand legal position

New Zealand has no franchise-specific legislation, statutory franchise registration system or universal statutory franchise disclosure requirement. There is no special franchise law guaranteeing that you can sell to a buyer of your choice. Your negotiated contract is therefore central to your resale position.

General laws still apply. The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations in trade. The Contract and Commercial Law Act 2017 addresses matters including contractual misrepresentation and cancellation. The Commerce Act 1986 governs anti-competitive arrangements and conduct. None of these replaces careful review of the transfer provisions.

The Franchise Association of New Zealand (FANZ) operates a Code of Practice and Ethics for its members. Membership is voluntary, but members must comply with the applicable code obligations. These are not statutory rules applying to every franchise.

Under the code, disclosure documents must be updated at least annually and supplied at least 14 days before signing a franchise agreement, or before becoming bound by a preliminary agreement to proceed. Verify membership and ask your lawyer how the code applies to your particular purchase. A disclosure document is useful evidence, but it is not a substitute for enforceable contract wording.

4. Check what survives the sale

A completed sale does not necessarily end every liability. Personal guarantees, confidentiality duties and restraints of trade need separate attention.

Ask your lawyer whether you and any guarantors will receive an express written release from future obligations under the franchise agreement. Check bank, equipment-finance and landlord guarantees separately: the franchisor cannot release obligations owed to another party.

Review any post-sale restraint for its duration, geographical reach and restricted activities. Do not assume it is either automatically enforceable or safely ignored; obtain advice on the actual wording and circumstances.

Finally, ask to speak with former franchisees who sold successfully. Find out how approval worked, what delayed completion and which costs surprised them. Compare their experience with the proposed contract, rather than treating a smooth past sale as a promise.

Practical takeaway: Before signing, obtain a written resale checklist covering buyer approval, available term, total exit costs and releases from liability. Negotiate unclear provisions while you still have the choice not to buy.