Buying a NZ Franchise: Will Customer Contracts Transfer?

An established franchise may come with regular customers, recurring orders and a reassuring sales history. But buying the business does not necessarily secure those customers. Before paying for goodwill, establish which customer relationships you will actually receive, what permissions are needed and whether customers can leave when ownership changes.

Separate customer loyalty from enforceable commitments

Start by asking the seller how the outlet earns repeat business. A signed service agreement, an informal arrangement with a local organisation and a customer who visits every week provide different levels of certainty.

Request a schedule of significant customer relationships showing:

• Who the customer contracts with: the franchisee, franchisor or another company.
• Whether there is a written agreement and when it expires.
• Any minimum purchase commitment or agreed order volume.
• Notice periods and rights to cancel.
• Whether prices are fixed or subject to review.
• How much business depends on the seller’s personal involvement.

Have your accountant assess how concentrated the customer base is. A busy outlet can still be vulnerable if a small number of customers account for much of its revenue and can leave at short notice.

For a walk-in business, individual contracts may be uncommon. Focus instead on evidence of repeat custom, local relationships and how closely those relationships depend on the departing owner. Avoid treating a customer list as a guarantee of future sales.

Establish who controls the relationship

Within a franchise community, the local operator may deliver the service without controlling the underlying customer account. National accounts, online bookings and centrally negotiated work may belong contractually to the franchisor.

Ask the franchisor to confirm in writing which accounts the outlet currently services and what happens to them following your purchase. Can the franchisor reallocate that work? Does the buyer need separate approval to service particular accounts? Are current arrangements contractual commitments or discretionary allocations?

For locally held contracts, ask your lawyer to check assignment and change-of-control provisions. An asset purchase may require contracts to be assigned or replaced. Transferring contractual obligations may require a novation involving the customer. A share purchase leaves the company as the contracting party, but a change-of-control clause may still trigger consent or cancellation rights.

Do not assume that permission to buy the franchise also amounts to customer consent. Franchisor approval and customer approval are separate matters.

Identify any tendered work, purchase orders or approved-provider arrangements that need fresh registration. Put each required consent on a transaction checklist, with a responsible person and deadline.

Check the legal position and customer information

New Zealand has no franchise-specific legislation governing the ongoing franchisor–franchisee relationship and no franchise registration requirement. General laws therefore matter, including the Contract and Commercial Law Act 2017 and the Fair Trading Act 1986. The latter prohibits misleading or deceptive conduct in trade, including misleading statements about the business being sold.

The Franchise Association of New Zealand (FANZ) operates a Code of Practice and Ethics binding on its members. Membership is voluntary; the code is not a statutory regime applying to every franchise. Neither membership nor disclosure replaces checking whether particular customer contracts can transfer.

Customer records also require care under the Privacy Act 2020. Ask your lawyer how personal information can lawfully be shared during due diligence and transferred at completion. Confidentiality agreements are useful, but do not by themselves resolve every privacy issue.

Initially, anonymised customer summaries may be sufficient. Before identifiable records are released, establish the appropriate legal basis, access restrictions and security arrangements. Check whether the franchisor’s systems will give you the access needed to service customers after settlement.

Make continuity part of the purchase agreement

Turn important assumptions into documented conditions rather than relying on a promise of introductions. Your lawyer should consider conditions requiring essential customer consents or replacement agreements before you become unconditionally committed.

Agree a practical handover plan covering introductions, customer communications and responsibility for outstanding orders, prepaid services, complaints and credits. Specify the seller’s duties and availability rather than simply requiring “reasonable assistance”.

If a major customer will not commit until after completion, discuss the risk with your accountant and lawyer. The purchase price or payment structure may need reconsideration; contractual protection cannot make a customer stay.

Practical takeaway: Before paying for established custom, verify who holds each important relationship, whether it can transfer and what must happen before settlement.