Buying a NZ Franchise: Check Your Territory Rights

A franchise territory can look reassuring on a map, yet offer less protection than you expect. Before buying a franchise in New Zealand, establish exactly where you may operate, who else may serve those customers and whether your boundaries can change. Within the franchise community, territory arrangements differ considerably: a defined area is not necessarily an exclusive one.

1. Find out what the territory actually protects

Start with the proposed franchise agreement and its territory schedule. Ask the franchisor to identify the clauses that grant your rights, rather than relying on a brochure describing a “protected area”.

Three arrangements need particular attention:

• Exclusive territory: protection against specified competing activity within an area. The agreement must explain who is restricted and what exceptions apply.
• Non-exclusive territory: permission to operate in an area without necessarily preventing another franchisee or the franchisor from serving it.
• Operating or marketing area: boundaries governing where you work or advertise, which may offer no protection against competing outlets.

Ask whether the restriction covers both other franchisees and company-owned operations. Does it prevent a new physical outlet, active solicitation of customers, or all sales into your area? These are different protections.

Check the boundaries themselves. A shaded sales map is insufficient if the signed schedule uses different descriptions. Request a clear, dated map supported by an unambiguous written definition. For a mobile business, clarify whether the relevant location is the customer's address, the service address or the place where the booking originates.

2. Trace online orders and shared customers

Territorial protection can be weakened by exceptions for websites, apps, national accounts and alternative sales channels. Those exceptions are not automatically unreasonable, but you need to understand their practical effect before committing.

Ask the franchisor to walk through these scenarios:

• A customer inside your territory orders through the brand's website.
• A national customer needs work completed at a local branch.
• A neighbouring franchisee receives a direct enquiry from someone in your area.
• A delivery platform accepts an order that crosses franchise boundaries.
• An existing customer moves outside your territory but wants to keep using you.

For each example, establish who receives the enquiry, who does the work, who invoices and how any payment is allocated. Ask whether you must service centrally negotiated contracts, and whether you can review the applicable rates and obligations before signing.

Also check responsibility for refunds, complaints and repeat business. Access to customer records matters: if the central system allocates customers, understand what information you can use during the agreement and what happens when it ends, subject to privacy law.

Speak to established franchisees about how these arrangements work in practice. Treat their experience as a cross-check, not a substitute for enforceable written terms.

3. Check when protection can change

Some agreements make territorial protection conditional on minimum sales, customer coverage or other performance measures. Others allow boundary reviews when population patterns change or the franchisor develops new sales channels.

Ask your lawyer to identify every power to reduce, divide or remove your territory. Then examine the process:

• Are performance measures clearly defined, and can they be changed?
• How is performance assessed, and can you inspect the underlying records?
• Must the franchisor give written notice and time to remedy a shortfall?
• Can you challenge a proposed change before it takes effect?
• Is your consent required, or can the franchisor act unilaterally?

Check whether renewal preserves the existing territory or requires acceptance of new boundaries. A right of first refusal over an adjoining area is not the same as a guaranteed expansion right; examine its deadlines, conditions and additional costs.

Have your accountant consider the financial effect of losing customer access or sharing orders. This is about testing the value of the rights being purchased, not assuming exclusivity guarantees demand.

4. Put promises into the New Zealand legal context

New Zealand has no franchise-specific legislation, compulsory franchise registration or statutory franchise disclosure regime. Territorial rights therefore depend heavily on the agreement, alongside general law.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations in trade. Statements about exclusivity need to match the actual offer. The Contract and Commercial Law Act 2017 provides relevant contractual remedies, including for misrepresentation in appropriate circumstances. The Commerce Act 1986 can affect territorial and customer restrictions; specialist advice may be needed on competition implications.

Membership of the Franchise Association of New Zealand (FANZ) is voluntary, but its Code of Practice and Ethics binds members. It requires disclosure at least 14 days before signing a franchise agreement, or before becoming bound by a preliminary agreement to proceed. This is a membership obligation, not a universal statutory rule.

Ask an independent franchise lawyer to reconcile the disclosure document, maps, agreement and sales promises. Have material assurances incorporated into the signed documents.

Practical takeaway: Before paying for territorial protection, obtain a clear map, written rules for every sales channel and an explanation of every boundary-change power.