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4 Key Things Franchisors Should Know About the FANZ Code of Practice

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The Franchise Association of New Zealand (FANZ) is New Zealand’s primary platform to represent the broader franchising community. About one-third of all franchisors operating in New Zealand are members of the FANZ. The FANZ aims to promote positive dealings with all parties to a franchise agreement, including those looking to buy a franchise or existing franchisees and franchisors. If you are a member of the FANZ, you are bound by the FANZ Code of Practice. This article will take you through four key things you should know about this Code.

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1. What is the FANZ Code of Practice? 

The FANZ Code of Practice is a document that serves as a guideline for all of its members. The Code of Practice aims to:

  • encourage best practices throughout franchising;
  • provide reassurance to those entering franchising that any member displaying the logo of the FANZ is serious and has undertaken to practise fairly and reasonably;
  • provide the basis of self-regulation for franchising; and
  • demonstrate to everyone the positive will within franchising to regulate itself. 

All members of the FANZ must comply with the Code of Practice or risk losing their membership. 

2. Who is Bound By the FANZ Code of Practice?

The FANZ has a strict Code of Practice and Code of Ethics. Therefore, upon applying to join the FANZ, you must submit materials to check that you meet the requirements established by these Codes. An independent scrutineer then assesses the materials you submit. 

If FANZ accepts you as a member, you must:

  • uphold the Code of Ethics;
  • adhere to the Code of Practice;
  • promote membership of the FANZ;
  • adopt the highest standards of competency and integrity;
  • respect all confidentiality and intellectual property; and
  • act in an honourable and fair manner in all its business dealings.

There are also franchisor-specific requirements for being a member. This includes having a disclosure document containing important information about the franchise’s legal and financial standing. The purpose of this disclosure document is to give prospective franchisees information to make a reasonably informed decision about the franchise. Franchisors who are not members of the FANZ do not have to provide prospective franchisees with a disclosure document. 

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3. What Are the Key Terms?

Disclosure Document

The Code of Practice requires that franchisors provide prospective franchisees with a disclosure document. This gives the franchisee any necessary information to make an informed decision about whether to buy into the franchise network, including information about:

  • intellectual property;
  • franchise fees;
  • supplier and distributor terms;
  • relevant legal information; and
  • relevant financial information.

Cooling-Off Period

Under the Code of Practice, all franchise agreements must include a cooling-off period. This refers to the timeframe within which a franchisee can withdraw from the franchise agreement after entering the agreement. The Code requires the cooling-off period to be at least seven days. If activated, this provision allows the franchisee to recover their deposit less any relevant expenses that have been incurred.

Dispute Resolution 

Under the Code of Practice, all franchise agreements must also contain dispute resolution provisions. These provisions are to ensure that court proceedings are treated as a last resort, providing alternative dispute resolution measures that are fair to both parties. 

4. What If a Franchisor Breaches the FANZ Code of Practice?

The Code of Practice provides procedures for those who have broken any of its provisions. Firstly, the FANZ will write to the member who has breached the Code and request a statement. This allows the member to explain why they breached the Code and should not be sanctioned. This response is due within 14 days of receiving the notice letter.

If the member replies to the letter, a sub-committee will determine whether they should sanction the member. FANZ may remove or suspend the member. 

If the member does not reply within 14 days, the FANZ may choose to:

  • remove the member;
  • suspend the member; or
  • recover reasonable costs. 

If FANZ removes a member, this will take place within 21 days of the sanction coming into effect. 

Key Takeaways

The FANZ Code of Practice is a document that serves as a guideline for all of its members. The Code of Practice aims to encourage best practices in franchising, reassuring those entering the franchising industry and establishing self-regulation. Some key things to know about the Code of Practice include:

  • what it is;
  • who is bound by it;
  • what its key terms are; and
  • what happens if you breach it.

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

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