Buying a NZ Franchise: Protect Your Deposit Before Signing

A franchise deposit can feel like a simple way to reserve an opportunity while you investigate. But the document attached to it may commit you to more than you expect. Before paying to join New Zealand’s franchising community, establish what the payment buys, when it becomes non-refundable and whether you can withdraw if your checks reveal a problem.

1. Understand the rules before reserving an opportunity

New Zealand has no franchise-specific legislation, statutory franchise disclosure regime or dedicated franchise registration requirement. A brand’s Companies Office registration is not government approval of its franchise offer.

General laws still apply. The Fair Trading Act 1986 prohibits misleading or deceptive conduct and unsubstantiated representations in trade. The Contract and Commercial Law Act 2017 contains rules relevant to contractual remedies, including misrepresentation and cancellation. The Commerce Act 1986 governs competition matters. These laws do not provide an automatic right to recover a deposit simply because you change your mind.

There is also an important distinction between statutory obligations and association standards. Membership of the Franchise Association of New Zealand (FANZ) is voluntary, but its Code of Practice and Ethics applies to members.

Under the Code, a franchisor must provide its disclosure document at least 14 days before you sign the franchise agreement or become bound by a preliminary agreement to proceed. The document must be updated at least annually. Check the franchisor’s membership and ask your lawyer which Code protections apply to your proposed transaction.

For a non-member, request equivalent information and adequate review time in writing. Do not mistake the absence of mandatory franchise disclosure legislation for a reason to skip disclosure.

2. Identify what the preliminary document actually does

A document headed “reservation”, “expression of interest” or “application” may still contain binding obligations. Its title is less important than its wording.

Ask for every document associated with the payment before transferring money. This includes the application form, deposit terms, preliminary agreement and any conditions incorporated by reference.

Have your franchise lawyer answer these questions:

• What are you committing to? Is this only a reservation, or a promise to enter the franchise agreement?
• Who receives the money? Identify the legal entity and whether the funds are held by the franchisor or a stakeholder.
• What is being reserved? Specify the opportunity and how long the reservation lasts.
• What remains binding if you withdraw? Confidentiality or other obligations may continue.
• Can the franchisor reject you? Establish what happens to the deposit if approval is refused.

Do not assume money described as being held “on trust” has the safeguards you expect. Ask who holds it, under what terms and when it may be released.

If a salesperson promises that the payment is fully refundable, make sure the written agreement says the same thing before you pay.

3. Negotiate clear refund triggers and deductions

“Refundable subject to costs” is not a complete explanation. It leaves unanswered which costs count, who authorises them and whether they could consume the entire deposit.

Request a written schedule showing the payment amount, whether GST is included, whether it will be credited towards the franchise fee and the circumstances in which it can be retained.

Your lawyer should consider conditions covering:

• satisfactory legal and accounting due diligence;
• finance approval on terms acceptable to you;
• receipt and review of the full franchise agreement and disclosure material;
• completion of any required franchisor approval process.

These are protections to negotiate, not automatic legal entitlements. Each condition needs a clear deadline and a workable process for confirming satisfaction or withdrawing.

Where deductions are permitted, seek defined categories, supporting invoices and an agreed limit. Clarify whether the franchisor can commission training, design work or other services at your expense without separate written approval.

Set a refund deadline too. A right to repayment is less useful if the document does not say when repayment must occur.

4. Keep disclosure, payment and withdrawal dates separate

Create a simple timeline recording when you received disclosure, when any preliminary commitment becomes binding, when payments fall due and when conditions expire.

Do not confuse a pre-signing disclosure period with a post-signing cooling-off right. FANZ Code requirements include a minimum seven-day cooling-off provision for applicable agreements, but this does not apply to renewals or franchisee resales. Ask your lawyer to confirm eligibility, notice requirements and any permitted deductions; do not assume every payment is recoverable.

Keep copies of signed documents, payment receipts and correspondence. If you withdraw, follow the contractual notice procedure rather than relying on a telephone conversation.

Practical takeaway: Before paying a deposit, get written answers to three questions: what binds you, what lets you withdraw and exactly how much money comes back.