Buying a NZ Franchise: Check Your Right to Sell

Before buying a franchise, ask how you would sell it. A successful business is not necessarily easy to transfer: your franchise agreement may control the buyer, approval process and costs. Within New Zealand’s franchising community, understanding those restrictions before you commit helps you judge whether the opportunity fits your long-term plans.

1. Establish what you can actually sell

Buying a franchise gives you contractual rights to operate under a brand, not ownership of that brand. Do not assume you can pass those rights to someone else simply because you own the business assets.

Ask your lawyer to identify the agreement’s transfer provisions and explain which transactions they cover. A transfer might include selling the business, selling shares in your company, changing controlling ownership or bringing in a new business partner.

Establish whether a future purchaser would take over your existing franchise agreement or have to sign the franchisor’s then-current agreement. That distinction can affect the buyer’s costs, obligations and willingness to proceed.

Also ask what term would be available to the purchaser. A business with only a short period left on its franchise agreement may be harder to sell if a buyer has no certainty about continued operation. Do not assume a sale restarts the franchise term.

Request a written explanation of the usual resale process alongside the relevant contract clauses. If the explanation and agreement differ, have your lawyer resolve the discrepancy before you sign.

2. Understand who controls buyer approval

A franchisor has a legitimate interest in who joins its network. However, you need to understand how its approval process could affect your ability to find a buyer and complete a sale.

Check these points:

• Buyer criteria: What financial resources, experience, qualifications and personal involvement must a purchaser demonstrate?
• Decision-making: Does the agreement set objective criteria or give the franchisor broad discretion?
• Timing: Is there a deadline for responding once a complete application has been received?
• Training: Must the purchaser complete training before approval or settlement, and when is training available?
• Existing breaches: Must you remedy every outstanding issue before a transfer can proceed?
• Priority purchase rights: Can the franchisor buy first or match a third-party offer?

Ask how any priority purchase right operates, including the notice required, response period and treatment of changed sale terms. An unclear process can discourage buyers who do not want to spend money investigating a purchase that another party may take over.

Do not treat a statement that consent “will not be unreasonably withheld” as a complete exit plan. Your lawyer should explain its practical effect alongside the application requirements and any conditions the franchisor may impose.

3. Calculate the cost and conditions of leaving

The agreed sale price is not the same as the money you will retain. Ask for a schedule of all charges that could arise on transfer and identify who must pay each one.

Possible items to investigate include a transfer fee, the franchisor’s legal costs, purchaser training costs and any required refurbishment before approval. These are contract questions, not charges you should assume apply to every franchise.

Have your accountant prepare an illustrative exit calculation using the actual agreement. Deduct applicable transfer costs, professional fees, borrowing repayments and relevant tax obligations from a hypothetical sale price. This is not a prediction of future value; it shows how the exit provisions could affect your proceeds.

Then check whether selling actually ends your obligations. Ask your lawyer whether you would receive an express release from future obligations under the franchise agreement and whether any personal guarantees would also be released. Selling company shares does not, by itself, establish that a personal guarantee has ended.

List anything that survives settlement, such as confidentiality duties or responsibility for earlier breaches. Understand those continuing commitments before treating a sale as a clean exit.

4. Put the New Zealand legal position in context

New Zealand has no franchise-specific statute or compulsory franchise registration system. There is also no universal statutory franchise disclosure regime. Your ability to sell therefore depends heavily on the agreement, subject to applicable general law.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations. General contract law, including the Contract and Commercial Law Act 2017 where applicable, also matters. These protections do not replace a clear contractual transfer process.

Franchise Association of New Zealand membership is voluntary. Its Code of Practice imposes requirements on franchisor members, including disclosure obligations, but it is not legislation or a government guarantee of resale rights. Confirm membership and ask your lawyer which code requirements apply.

Practical takeaway: Before buying, obtain a clear account of buyer approval, transfer costs, the purchaser’s available term and your release from obligations. Assess the route out as carefully as the route in.