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Franchising is a popular business model for growth and expansion in New Zealand. This may be a good option if you wish to grow your already successful business. However, you must ensure you plan accordingly to protect your business interests and future pathways. Part of this process is preparing appropriate legal documentation, specifically, the franchise disclosure document.

This article will provide some background on disclosure documents and explain whether you need one for your New Zealand franchise.

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Franchising Law in New Zealand

Unlike Australia and the United States, New Zealand has no laws that solely regulate franchising. However, general trading laws and other relevant regulations still apply, such as:

  • fair trading laws;
  • consumer law;
  • contract law;
  • employment law;
  • privacy law; and
  • intellectual property law.

Therefore, you must draft robust and fair documentation to protect your business and avoid messy mistakes.

One essential document you will need is your franchise agreement. This document sets out the terms of your commercial relationship with a franchisee. If there is a dispute with a franchisee, this will be the first document you turn to determine your best course of action.

However, if you are a Franchise Association of New Zealand (FANZ) member, you will need to abide by their Code of Practice and Code of Ethics. They are a nationwide organisation that provides resources and support to franchises and specific standards of operation. Accordingly, becoming a member with them will directly impact whether you will need a franchise disclosure document.

What is a Franchise Disclosure Document?

Like your franchise agreement, a disclosure document is a crucial part of the onboarding process for franchisees. When potential franchisees are considering joining your franchise, they will likely want to find out crucial information about your establishment to help them decide. This document will provide franchisees with essential information about your franchise system.

Franchise disclosure documents can contain sensitive information about your franchise. Therefore, you may ask potential franchisees reading it to sign a confidentiality agreement promising not to share its contents with third parties outside the sale.

However, franchisees will not rely solely on a disclosure document to make their purchasing decisions. Although, it can be a valuable tool for their research process and one you can utilise to your advantage.

Do I Need a Franchise Disclosure Document?

As no franchise-specific laws in New Zealand mandate this requirement, you do not legally need to provide potential franchisees with a disclosure document. 

However, some situations may require you to provide one. In particular, if you are a member of FANZ, you must provide a disclosure document that meets their standards as per the Code of Practice. Accordingly, you must do this 14 days before a franchisee signs their franchise agreement and regularly update it.

Additionally, even if you are not a member of FANZ, it is a good idea to provide franchisees with a disclosure document. Many reputable franchises do as it ensures that franchisees are fully aware of the nature of your franchise when they sign on. Further, you can set out the state of your franchise at the time of purchase and use this document as evidence should you need to.

What Should a Franchise Disclosure Document Contain?

A disclosure document should set out fundamental facts and information about your franchise and the specific location you are advertising for franchisees. If you are a member of FANZ, you will need to include specific information, such as:

  • a company profile;
  • details of the officers of your company;
  • an outline of your franchise;
  • details of any commissions you give to advisors or consultants upon the sale of a franchise;
  • dispute resolution information;
  • complete summaries of all components that make up what a franchisee is purchasing;
  • references; 
  • projections of turnover;
  • franchise history; and
  • estimations of the profitability of your franchise.

You should be aware that you will also need to inform franchisees of the seven-day cooling-off period they have to cancel their franchise agreement.

Outside of these provisions, what you include in your franchise disclosure document is up to you. Consider what you are willing to share with potential franchisees, and seek legal advice where necessary.

Key Takeaways

The law does not require that you provide a franchise disclosure document for your franchisees. However, if you are a member of FANZ, you must do so to comply with their regulations. Outside of this, it is generally a good idea to provide a disclosure document to provide appropriate information for potential franchisees.

If you need help with your franchise disclosure document, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions

What is a franchise?

A franchise is a model you may employ to grow your business. Franchisees run imitations of your pilot operation, with access to support and what generally makes your business successful. In return, they can pay you various royalties and fees.

Do I need a franchise disclosure document?

If you are a franchisor who is also a member of FANZ, then you need to have a franchise disclosure document. If you are not, you do not necessarily have to have a disclosure document. However, it is generally a good idea too.

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