Buying a NZ Franchise: Who Carries the Fit-Out Risk?

A new franchise outlet can look straightforward on a floor plan while hiding complicated responsibilities. If building work runs late or the quoted price rises, who carries the loss? Before joining New Zealand’s franchise community, establish exactly how your initial fit-out will be delivered. The important question is not simply what the finished premises will cost, but which risks you are agreeing to carry before you can start trading.

1. Establish who is responsible for delivery

Do not assume that a franchisor offering a ‘turnkey’ outlet accepts responsibility for every part of the build. Ask for a written schedule identifying who designs, commissions, pays for and signs off each part of the work.

That schedule should cover premises preparation, services such as plumbing and electricity, interior construction, equipment installation and any required consents. It should distinguish the landlord’s work from the franchisor’s responsibilities and your own obligations.

Ask these questions before accepting the proposed arrangement:

• Who signs the contract with the builder or shopfitter?
• Who appoints and pays designers and other consultants?
• Who checks whether the existing premises can accommodate the proposed operation?
• Who obtains necessary approvals and confirms that trading can lawfully begin?
• Who must resolve defective or incomplete work?

These distinctions affect your practical rights. If the franchisor appoints the contractor, you may not have a direct contractual right to require that contractor to fix problems. Your lawyer should check what rights you have against the party promising delivery, rather than relying on informal access to its project manager.

2. Test the price and control variations

Request an itemised fit-out budget and the documents supporting it. Establish whether the stated total is a quotation, an estimate, a capped price or merely an indicative allowance. Check whether GST is included and identify every exclusion.

Pay particular attention to provisional amounts, which may change once the scope becomes clearer. Unconfirmed electrical work, drainage alterations or landlord requirements can make an apparently complete budget less reliable than it looks.

Ask for a separate explanation of any site development or project management fee payable to the franchisor. What work does that fee purchase? Is it additional to consultants’ and contractors’ charges? Who bears additional costs if the design requires revision?

Your agreement should establish a clear process for variations. Aim to require written notice showing the reason, price and timing consequences before extra work is authorised. Confirm who can approve a variation on your behalf and whether your approval is needed above any agreed limit.

An independent construction or fit-out adviser can help assess the scope and allowances. An accountant can check affordability, but should not be expected to verify whether a building specification is complete.

3. Agree what happens if opening slips

A target opening date is not necessarily an enforceable completion commitment. Ask your lawyer to identify which dates are binding, what permits extensions and what happens if those dates are missed.

Prepare a timeline linking site access, design approval, consents, construction, inspections and handover. Include the point at which you can install stock, bring staff on site and begin trading. A contractor finishing physical work does not necessarily mean the outlet is ready to open.

Then test the financial consequences of a delay:

• When do rent and other premises charges begin?
• Can franchise charges become payable before trading starts?
• Will equipment payments or finance repayments already be due?
• Who pays for storage, repeat deliveries or rescheduled installation?
• What happens to staff start dates if the premises are unavailable?

Negotiate how delay costs will be allocated rather than assuming the party causing a delay must automatically reimburse everything. Ask whether a final deadline, sometimes called a long-stop date, should trigger specific remedies. Any cancellation or repayment rights need to work across the relevant agreements; walking away from one contract may leave another in force.

4. Have the documents reviewed together

New Zealand has no franchise-specific legislation governing the ongoing franchisor–franchisee relationship and no government franchise registration requirement. General laws apply, including the Contract and Commercial Law Act 2017 and the Fair Trading Act 1986, which addresses misleading or deceptive conduct. Relevant building and health and safety requirements also need attention during a fit-out.

The Franchise Association of New Zealand’s Code of Practice binds its members, but is not a statutory code applying to every franchise. Membership does not replace a properly documented fit-out arrangement.

Give your franchise lawyer the franchise agreement, fit-out agreement, construction documents and relevant premises documents together. Ask them to check inconsistent deadlines, payment triggers, liability exclusions and dispute procedures. Put material promises about price, completion and responsibility into the contractual documents before signing.

Practical takeaway: Do not commit on the strength of a design and an estimated total. Obtain a defined scope, a clear variation process and written consequences for delay, with each responsibility allocated to a named party.