Buying a NZ Franchise: Check Dispute Resolution Clauses

A disagreement with your franchisor can affect cash flow, daily operations and the value of your business. Before joining a franchise community, check whether the agreement provides a workable way to resolve problems. A dispute resolution clause deserves attention before you sign, not just when a relationship becomes strained.

Understand the legal framework

New Zealand has no franchise-specific legislation governing the ongoing relationship between franchisors and franchisees. There is also no government franchise registration requirement or statutory franchise-specific disclosure regime. Your agreement is therefore an important starting point for understanding how disagreements must be handled, but it is not the only source of rights.

General laws apply. The Fair Trading Act 1986 prohibits misleading or deceptive conduct, unsubstantiated representations and unconscionable conduct in trade. The Contract and Commercial Law Act 2017 can provide remedies for matters such as contractual misrepresentation and breach, depending on the circumstances. Competition, intellectual property and other laws may also be relevant to a particular dispute.

Membership of the Franchise Association of New Zealand (FANZ) is voluntary, but members must comply with its Code of Practice and Ethics. If the franchisor is a member, ask your lawyer to explain the applicable code requirements alongside the contractual dispute procedure. Do not assume membership replaces your need for independent advice or guarantees a particular outcome.

Ask your lawyer to distinguish between the steps your contract requires and any statutory rights or remedies that may remain available. A contractual process should not be read as a complete statement of your legal rights.

Map the route from complaint to resolution

Read the clause as a sequence of practical steps. Could you follow it if a promised service was not delivered or an unexplained charge appeared on your account?

Start with the notice requirements. Identify who must receive a complaint, which delivery methods are permitted and what information the notice must contain. An informal conversation with your field representative may not count as formal notification under the agreement.

Then check the escalation process:

• Direct discussion: Must the parties meet first, and does the meeting involve someone with authority to settle the issue?
• Time limits: How long does each stage last, and what happens if the other party does not respond?
• Mediation: Is it required before further proceedings, and how is the mediator appointed?
• Final determination: Does an unresolved dispute go to arbitration or court?
• Urgent relief: Can either party seek urgent court orders without completing every earlier step?

Mediation usually involves an independent person helping the parties reach their own settlement; the mediator does not ordinarily impose a decision. Arbitration involves an arbitrator determining the dispute, generally through a binding award. These are different processes, with different implications for cost, procedure and challenge rights.

Watch for a procedure that requires agreement on an appointment but offers no fallback if agreement proves impossible. Ask what prevents the process from becoming stuck.

Calculate the practical cost of using the clause

A dispute mechanism is less useful if you cannot realistically access it. Establish where meetings or hearings must take place, whether remote participation is possible and which country's law governs the agreement. Overseas proceedings can introduce additional advice, travel and enforcement costs.

Ask your lawyer to identify responsibility for:

• Mediator or arbitrator fees and any deposits required to begin.
• Venue, administration and travel expenses.
• Each party's legal and expert advice.
• Any power to order one party to pay the other's costs.

Do not assume mediation is free or arbitration is necessarily cheaper than court. Costs depend on the process and complexity of the disagreement.

Check any separate provision requiring you to reimburse the franchisor's enforcement expenses. Ask whether it could apply during a genuine dispute, how broadly it is drafted and whether the obligation is reciprocal. You need to understand the potential financial exposure, not simply the heading above the dispute clause.

Check what happens while a dispute is unresolved

Many commercial disagreements continue while the business is still trading. Find out which obligations remain in force during the process, including payments, supply arrangements and access to essential systems.

Do not assume that raising a complaint lets you withhold fees or stop following contractual requirements. Taking those steps without advice could create a separate breach. Equally, ask whether the agreement provides any protection against interruption of essential services while a genuine dispute is being addressed.

Keep the signed agreement, relevant correspondence, invoices and dated notes of important conversations. If settlement is reached, have its terms recorded clearly, including deadlines, payment arrangements and any release of claims. Obtain advice before accepting confidentiality or release wording that could affect wider rights.

Practical takeaway: Before signing, ask your franchise lawyer to walk through one realistic disagreement from first notice to final outcome. Confirm the timetable, likely cost exposure and how your business would keep operating throughout.