Buying a NZ Franchise: Protect Your Upfront Deposit

A request for a deposit can arrive before you have finished investigating a franchise. It might reserve an opportunity, cover assessment costs or contribute towards the initial franchise fee. Whatever its label, paying too early can put your money at risk. Within New Zealand’s franchise community, buyers should treat every upfront payment as a separate decision requiring clear written terms.

Understand what you are paying for

Do not assume that a “reservation fee”, “application fee” and “deposit” mean the same thing. The payment’s treatment depends on the agreement governing it, not simply the description on an invoice.

Ask for a written breakdown explaining:

• The precise purpose of the payment.
• Whether it forms part of the initial franchise fee or purchase price.
• Whether GST is included and how it will appear on the invoice.
• Which services, if any, will be delivered in exchange.
• Whether further payments become due before the franchise agreement is signed.

If the payment reserves an opportunity, establish what that reservation actually achieves. Does the franchisor stop discussing it with other candidates? How long does the reservation last? What happens if the franchisor needs more time to assess your application?

For an existing business, distinguish a deposit payable to the seller from money payable to the franchisor. These may sit under different agreements, with different refund rules. A refund under one agreement does not automatically release you from obligations under another.

Know which New Zealand rules apply

New Zealand has no franchise-specific legislation imposing a universal pre-contract disclosure regime or mandatory franchise registration. General laws apply instead. The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations in trade. The Contract and Commercial Law Act 2017 is also relevant to contractual rights and remedies, including misrepresentation.

These protections are not a substitute for agreed payment terms. A disappointing investigation does not, by itself, necessarily entitle you to recover money already paid.

The Franchise Association of New Zealand (FANZ) operates a voluntary membership framework. Its Code of Practice applies to its franchisor members; it is not legislation applying to every franchise brand.

Under that Code, where money is required before signing, the franchisor must specify in writing the purpose of the payment, the conditions governing its refund or application, and the identity of the person holding it. The Code also requires disclosure at least 14 days before signing a franchise agreement or becoming bound under an agreement to proceed.

Check membership rather than assuming it from a brand’s reputation. Ask your franchise lawyer how the applicable Code requirements interact with any application or preliminary agreement. Do not assume that calling a document a “reservation form” means it cannot bind you.

Check who holds the money and when it can be released

The recipient’s identity matters as much as the refund wording. Money paid directly into a franchisor’s operating account is not necessarily protected simply because somebody calls it a deposit.

Ask whether the payment will be held by a solicitor or another independent stakeholder, or paid directly to the franchisor. If a trust account or stakeholder arrangement is proposed, obtain the written holding instructions. Check whose money it is treated as, when it may be released and whether your further authority is required.

Independent holding arrangements can reduce some risks, but they do not automatically make a payment refundable. The release conditions still need scrutiny.

Discuss these questions with your lawyer:

• Can the recipient spend or transfer the money before your investigation finishes?
• What happens if the franchisor rejects your application?
• What happens if the opportunity is withdrawn?
• What protection exists if the recipient becomes insolvent?
• Who must authorise repayment if there is a disagreement?

Verify payment instructions using a trusted contact method before transferring funds. Keep the agreement, invoice, payment confirmation and correspondence together.

Test the refund terms against real outcomes

Ask your lawyer to test the wording against situations that could stop the purchase: finance being declined, an unsatisfactory investigation, failure to secure premises, or disagreement over the final franchise agreement.

For each situation, establish whether you receive a full refund, a partial refund or nothing. Check the notification deadline, the required method of giving notice and how quickly repayment must occur.

Be particularly careful with deductions for “costs incurred”. Ask which costs qualify, whether they need supporting evidence and whether a maximum deduction can be agreed. An apparently refundable payment may offer little protection if deductions are open-ended.

Finally, check how the deposit is credited if you proceed. The final payment statement should show the amount already paid so it is not charged twice.

Practical takeaway: Before transferring an upfront deposit, have your lawyer confirm its purpose, holder, release conditions and refund rules. If those answers are unclear, pause the payment rather than relying on verbal reassurance.