Buying a NZ Franchise: Check the Lease Matches the Term

A promising franchise can become a difficult purchase if your right to occupy its premises expires before your right to use the brand — or continues long after it. For buyers joining New Zealand’s franchise community, checking these agreements together is essential. This guide explains how to identify mismatched terms, uncover related costs and make your offer conditional on a workable arrangement.

1. Establish who controls the premises

Start by identifying the legal arrangement behind the shop, café or office. You might lease directly from the landlord, take a sublease from the franchisor, or occupy under a licence. These arrangements can give you different rights and expose you to different risks.

Ask for the complete lease and any variations, renewal documents, sublease or occupancy licence. Do not rely on a sales summary stating that the premises are ‘secured’.

Your lawyer should establish:

• Who is the tenant, and who will be responsible after settlement?
• Does the permitted use cover the proposed franchise activities?
• Is landlord consent needed for an assignment, sublease, change of control or alterations?
• Does the franchisor have rights to take over the premises?
• What happens to your occupation if the head lease or franchise agreement ends?

For an existing outlet, ask about rent arrears, unresolved breaches and landlord disputes. A seller’s statement that the landlord is supportive is not a substitute for any written consent the transaction requires.

2. Compare the dates, not just the headline terms

Prepare a single timeline showing the commencement and expiry dates of the franchise agreement, lease and proposed borrowing. Add renewal notice deadlines, rent reviews and any scheduled refurbishment obligations.

A franchise advertised with a substantial term may occupy premises with only a short period left on the lease. Conversely, a long lease can leave you paying rent after your brand rights have ended.

Renewal options need particular attention. Ask whether they are enforceable rights subject to stated conditions, or merely opportunities to negotiate. Check whether the lease option remains available following the sale and whether earlier breaches could affect it.

Franchise renewal may involve a new agreement, further fees or an upgrade to the latest fit-out standard. Lease renewal may trigger a rent review. Neither should be treated as a cost-free extension.

Ask your lawyer to explain the consequences of each agreement ending first. Do not assume that termination of one automatically releases you from the other, or that a renewal will be granted because previous franchisees received one.

3. Budget for the mismatch risk

The purchase price and weekly rent are only part of the premises calculation. Have your accountant model the business over the period for which occupation and franchise rights are actually secured, rather than assuming every renewal will occur.

Request evidence for:

• Rent, outgoings and the applicable GST treatment.
• Rent review mechanisms and upcoming review dates.
• Maintenance, insurance and repair responsibilities.
• Fit-out ownership, equipment leases and refurbishment requirements.
• End-of-lease reinstatement or ‘make good’ obligations.
• Legal, consent and assignment fees, where payable.

Then test less favourable outcomes. Could the business repay its borrowing if the lease is not renewed? What would relocation cost, and would the franchisor permit another site? Could you afford rent and loan repayments during a closure?

Check personal guarantees separately. A company structure does not remove obligations you personally guarantee. Ask what releases are required when you sell or leave, and whether any security or guarantees could continue beyond your involvement.

4. Understand New Zealand’s legal framework

New Zealand has no franchise-specific legislation, statutory franchise disclosure regime or franchise registration system. Buying a franchise therefore requires close attention to the contracts and the general laws that apply.

The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations. Claims about secure tenure, renewal prospects or premises costs should have a proper basis. Keep copies of sales material and written answers to your questions.

The Contract and Commercial Law Act 2017 provides relevant general contract rules and remedies. The Property Law Act 2007 is important to commercial leasing, including rules affecting lease cancellation and certain consent issues. Your lawyer should explain how these laws interact with the proposed documents.

Franchise Association of New Zealand (FANZ) membership is voluntary. Its Code of Practice and Ethics requires member franchisors to provide disclosure at least 14 days before signing a franchise agreement, or before a prospective franchisee becomes bound by a preliminary agreement to proceed. This is a membership requirement, not a universal statutory right. Disclosure does not replace independent lease review.

5. Protect the offer before committing

Have your lawyer draft appropriate conditions covering satisfactory due diligence, finance, franchisor approval and the necessary premises arrangements. Where required, include landlord consent or completion of an acceptable new lease.

Specify deadlines, who must obtain each approval and what happens to any deposit if conditions are not met. Avoid committing unconditionally to the purchase while essential occupation rights remain unresolved.

Practical takeaway: Before signing, put the lease, franchise agreement and borrowing commitments on one timeline. Proceed only when you understand the gaps, can fund the risks and have the necessary rights documented.