Plan Franchise Reservation Agreements in New Zealand

When franchising an existing New Zealand business, you may want to reserve an opportunity while a prospective franchisee completes their enquiries. A preliminary or reservation agreement can help, but it can also create obligations earlier than expected. Before accepting money or promising exclusivity, establish exactly what the reservation achieves and how either party can bring it to an end.

Decide whether a reservation is necessary

A reservation should solve a specific problem, not simply demonstrate that a candidate is serious. Perhaps you need to pause discussions with other applicants while a suitable candidate investigates premises. Alternatively, the candidate may need time to review the proposed franchise arrangements without the opportunity being offered elsewhere.

First consider whether a non-binding timetable would achieve the same result. Introducing another agreement adds administration, legal costs and another set of promises to manage.

If a reservation is justified, write a short commercial brief for your franchise lawyer covering:

• The precise opportunity being reserved.
• The start date and expiry date.
• What the franchisor will stop doing during that period.
• What enquiries or milestones the candidate must complete.
• Whether either party is committed to entering the franchise agreement.
• What happens if the candidate, location or funding is not approved.

Avoid vague promises such as “the area is yours”. A candidate might understand that as a permanent territorial grant, while you intend only a temporary pause in recruitment. Explain whether existing outlets, online enquiries and other applicants are affected by the reservation.

Apply New Zealand rules before creating a commitment

New Zealand has no franchise-specific legislation imposing a general statutory disclosure regime, and no government franchise registration requirement. That does not make preliminary dealings unregulated.

General contract law applies, alongside the Fair Trading Act 1986. The Act prohibits misleading or deceptive conduct, unsubstantiated representations and unconscionable conduct in trade. Its unfair contract terms provisions may also be relevant to qualifying standard-form small trade contracts. Have your lawyer assess the proposed terms rather than assuming that a short reservation form falls outside these protections.

Descriptions of availability, exclusivity and refund rights must match what you actually offer. For example, do not say an opportunity is being held exclusively while continuing to offer the same opportunity to another candidate.

Membership of the Franchise Association of New Zealand (FANZ) is voluntary, but members must follow its Code of Practice and Ethics. Under the FANZ Code, the disclosure document must be supplied at least 14 days before a prospective franchisee signs the franchise agreement or becomes bound by a preliminary agreement to proceed. The document must also be updated at least annually.

Consequently, a reservation agreement is not a shortcut around disclosure. Ask your lawyer whether the proposed document triggers the Code’s preliminary-agreement requirements, including relevant advice and cooling-off provisions. Its substance matters, not merely its title. These are FANZ membership obligations, not a statutory code applying to the entire New Zealand franchising community.

Make the treatment of money unmistakable

A deposit creates an immediate expectation about what the candidate receives in return. Do not collect it until the written terms explain its purpose and treatment.

Distinguish between money held towards an eventual franchise fee and payment for a genuinely separate service. Calling a payment an “administration fee” does not, by itself, settle whether retaining it is lawful or appropriate.

Set out clearly:

• Who receives the payment and how it will be recorded.
• Whether it is credited against the initial franchise fee.
• The circumstances in which it is refundable.
• Any proposed deductions and how they are calculated.
• When a refund becomes due and who processes it.

Consider different outcomes separately: the candidate withdraws, the franchisor rejects the application, a suitable site cannot be secured, or the reservation expires. Avoid a blanket “non-refundable” statement without legal review, particularly where the franchisor can reject the candidate at its discretion.

Ask your accountant to confirm the GST and bookkeeping treatment. Never describe funds as held in trust unless an appropriate arrangement actually exists.

Control the reservation through to expiry

Nominate one person to maintain a reservation register. Record the candidate, opportunity, approved terms, disclosure delivery date, payment status, milestones and expiry date. Recruitment staff should check this register before making availability promises.

Keep extensions in writing. Confirm whether an extension changes the exclusivity period, candidate obligations or payment treatment, and obtain approval before promising it.

When the reservation ends, record the outcome, process any refund or fee credit and confirm whether the opportunity is available again. Do not treat silence as automatic agreement to proceed.

Practical takeaway: Use a reservation only when it serves a clear purpose. Agree its boundaries, obtain legal review and establish the payment and expiry process before asking a candidate to sign or pay.