New Zealand is an exciting and fast developing market in relation to franchising. Considering that the population of New Zealand is about 5.12 million and there are over 590 systems, there is one system for every 8,690 people and we are the most franchised country in the world per head of population. New Zealanders love brands and businesses which succeed and franchising offers people a chance to leave the security of employment and purchase a franchised business which should succeed provided the system is followed.
Legal Position
There are no franchising specific laws in New Zealand. However, there are existing laws which protect franchisees and probably the three main laws are the Fair Trading Act 1986, the Commerce Act 1986 and the Contract and Commercial Law Act 2017. Those Acts focus in particular on misrepresentations and restrictive trade practices which include anti-competitive behaviour.
FANZ – Code of Practice and Code of Ethics
There is no mandatory disclosure régime in New Zealand but there is the Franchise Association of New Zealand (FANZ) which was formed in 1996. The FANZ publishes the Code of Practice and the Code of Ethics and all members of it must comply with both Codes. The Code of Practice has four main aims which are as follows:
- To encourage best practice throughout franchising.
- To provide reassurance to those entering franchising that any member displaying the logo of the FANZ is serious and has undertaken to practise in a fair and reasonable manner.
- To provide the basis of self-regulation for franchising.
- To demonstrate to everyone the positive will within franchising to regulate itself.
The Code applies to all members including franchisors, franchisees or affiliates such as accountants, lawyers and consultants and all prospective new members of the FANZ must agree to be bound by the Code before they can be considered for membership.
What Does the Code Cover?
- Compliance – all members must certify that they will comply with the Code and members must renew their certificate of compliance on an annual basis.
- Disclosure – a disclosure document must be provided to all prospective franchisees at least 14 days prior to signing a franchise agreement. This disclosure document must be updated at least annually and it must provide information including a company profile, details of the officers of the company, an outline of the franchise, full disclosure of any payment or commission made by a franchisor to any adviser or consultant in connection with a sale, listing of all components making up the franchise purchase, references and projections of turnover and possible profitability of the business.
- Certification – the Code requires franchisors to give franchisees a copy of the Code and the franchisee must then certify that he or she has had legal advice before signing the franchise agreement.
- Cooling Off Period – all franchise agreements must contain a minimum 7 day period from the date of the agreement during which a franchisee may change its mind and terminate the purchase. This is very important and the cooling off period does not apply to renewals of term or resales by franchisees.
- Dispute Resolution – the Code sets out a dispute resolution procedure which can be used by both franchisor and franchisee to seek a more amicable and cost-effective solution. The Code requires all members to try to settle disputes by mutual negotiation in the first instance and this process does not affect the legal rights of both parties to resort to litigation.
- Advisers – all advisers must provide clients with written details of their relevant qualifications and experience and they must respect confidentiality of all information received.
- Code of Ethics – all members must subscribe to the Code of Ethics which sets out the spirit in which the Code of Practice will be interpreted.
All franchisor members of the FANZ must have a franchise agreement which contains a dispute resolution clause and a cooling-off provision. In order to resolve disputes, mediation is the favoured method and it has a high success rate in relation to franchising disputes. However, if mediation does not work then litigation would be the next step.
International Aspects
New Zealand encourages and welcomes franchise systems from overseas and in all cases master franchise agreements and unit franchise agreements will need changing for New Zealand conditions. In particular, some clauses which will require attention are restraint of trade, dispute resolution, franchise payments where non-resident withholding tax must be deducted, governing law, and personal property securities aspects.
New Zealand is a sophisticated market and fairly deregulated in relation to business. The FANZ has been very successful by promoting self-regulation and high standards in franchising, and its Code of Practice is widely understood and accepted by franchisors in New Zealand. Overseas franchisors who wish to enter into New Zealand should find it relatively easy, but in all cases expert commercial and franchising law advice should be obtained.
Stewart Germann founded Stewart Germann Law Office (SGL) in 1993 as a boutique law firm at Auckland, New Zealand, specialising in franchising, licensing and business law. Stewart has over 40 years’ experience in franchising law and acts for franchisors in New Zealand, Australia, USA and the UK. SGL also act for franchisees and provides legal advice. Stewart has spoken at franchising conferences in New Zealand, Australia, Italy, South Korea and USA and he was on the Board of the Supplier Forum of the International Franchise Association (“IFA”) for 6 years until March 2007.
Email: [email protected] | Web: www.germann.co.nz