Buying a NZ Franchise: Make Your Offer Conditional

Finding a franchise you want to buy is not the same as being ready to commit unconditionally. You may still need your accountant to check the accounts, your lender to approve borrowing and the franchisor to approve you. A carefully drafted conditional offer can create space for those checks. The protection depends on the wording, however, not simply on calling an offer “subject to due diligence”.

Understand what a conditional offer does

A conditional sale and purchase agreement can be legally binding while leaving completion dependent on specified conditions. It is not a casual reservation or an automatic right to walk away whenever you change your mind.

For an existing franchise, you may be negotiating with the outgoing franchisee while separately applying to the franchisor. The seller’s acceptance does not, by itself, give you permission to operate under the brand.

Before making an offer, ask a franchise-experienced lawyer to identify what must happen before you become unconditionally committed. That might include satisfactory financial and legal due diligence, finance approval and written franchisor consent.

Each condition should explain:

• What must be checked or approved.
• Who benefits from the condition and who decides whether it is satisfied.
• What efforts the buyer must make to satisfy it.
• The deadline and any required notice procedure.
• What happens if it is not satisfied or is waived.

Do not assume an estate agent’s or broker’s standard wording covers the franchise-specific parts of your purchase.

Make due diligence a usable condition

A due diligence condition needs to give your advisers enough scope to investigate the actual transaction. Reviewing last year’s profit figure alone will not reveal every obligation you are taking on.

Agree what information must be available. Depending on the business, this could include financial records, material contracts, details of disputes, the proposed franchise agreement and the documents governing occupation of the premises.

Ask your lawyer whether the condition allows you to assess commercial suitability as well as legal and financial issues. A clause limited to checking the accuracy of accounts may not address concerns about obligations in the franchise agreement.

Timing matters too. A deadline that expires before the seller supplies essential records is of limited practical use. Discuss how delayed information will be handled and whether extensions require written agreement. Do not assume the clock stops while you wait.

Keep a written list of outstanding questions. Before the condition deadline, your advisers should help you decide whether to proceed, seek changes, request an extension or exercise any available cancellation right. Silence may have consequences under the agreement.

Coordinate finance, consent and signing dates

Lender interest is not necessarily final approval. Your lender may still require a valuation, security documents or a review of the franchise agreement. A finance condition should reflect the funding you actually need and the approval process you must complete.

Ask your lawyer how much discretion the wording gives you if the lender offers finance on terms you cannot accept. You may also have obligations to make genuine efforts to obtain finance; a condition should not be treated as a convenient escape route.

Franchisor approval needs similar care. Establish whether approval depends on interviews, training or signing a new franchise agreement. Identify who must obtain that approval and what evidence confirms it.

Then have your lawyer review the transaction documents together. Avoid becoming unconditionally bound to buy the business while permission to use the brand remains uncertain. Equally, signing a franchise agreement too early could create obligations even if the business purchase does not proceed.

Use a shared timetable showing each condition, the responsible person, the evidence needed and the deadline. Any change should be documented in the manner the relevant agreement requires.

Know the New Zealand legal position

New Zealand has no franchise-specific legislation governing the franchise relationship and no government franchise registration requirement. General contract law, including the Contract and Commercial Law Act 2017, applies. The Fair Trading Act 1986 also prohibits misleading or deceptive conduct in trade.

The Franchise Association of New Zealand (FANZ) operates a membership-based Code of Practice and Ethics. Membership is voluntary, but members must comply with its requirements. These include providing prospective franchisees with disclosure at least 14 days before signing a franchise agreement or becoming bound by a preliminary agreement to proceed.

That disclosure requirement is not a substitute for a negotiated due diligence condition. Nor should you assume a conditional preliminary agreement falls outside it: have your lawyer check when your obligations become binding.

Practical takeaway: Before submitting an offer, agree the conditions, evidence and deadlines with your lawyer and accountant. Commit unconditionally only when the checks and approvals your purchase depends on are properly resolved.