Reasons Not to Break the NZ Franchising Code of Practice 

In Short

• FANZ’s Code of Practice sets industry standards, ensuring transparency and integrity in franchising.
• Breaching the Code can lead to sanctions, damaging reputation and membership status.
• Sanctions may include suspension, removal, or franchise agreement termination.

Tips for Businesses

Adhering to the Franchising Code is crucial for maintaining credibility and trust in the industry. Membership in FANZ signals professionalism, so breaches can harm relationships and limit growth opportunities. Proactively comply with regulations to safeguard your reputation and long-term success.

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Table of Contents

• What is the Franchising Code?
• What Happens if You Break the Franchising Code?
• Why You Should Not Break the Franchsing Code
• Key Takeaways
• Frequently Asked Questions

In New Zealand, the franchising community’s peak body is the Franchise Association of New Zealand (FANZ). It is beneficial to join as it allows you to use their resources and connect with others in the franchising community. However, one condition is that all members of FANZ must abide by their franchising Code of Practice (‘the Code’). This article will explain: 

• what the Code is;
• what happens if you break the Code; and
• reasons why you should not break it. 

What is the Franchising Code?

In New Zealand, there is no franchise-specific legislation that you might find in other countries such as Australia or Canada. Therefore, FANZ endeavours to set standards in the franchising community to keep it regulated. The Code of Practice and the Code of Ethics set specific regulations that franchisors and franchisees must adhere to when setting up agreements. Some of the things that the Code includes are:

• requirement of a cooling-off period in all franchise agreements;
• periodic disclosure documents; and
• dispute resolution methods to be used.
  

What Happens if You Break the Franchising Code?

The Code has a procedure in place if a member is alleged to have broken the Code. The board of FANZ will first write to the member in question, saying that the member needs to reply with a statement arguing why they should not be sanctioned. They must deliver this to the board within 14 days of receiving the letter from FANZ. If the member fails to respond within 14 days, the board can sanction the member through:

• removal of the member; or
• suspension of the member; and
• the recovery of reasonable costs.

If the member does reply to the initial letter, a sub-committee will convene to determine whether the member has proven whether they should not remove or sanction them. The sub-committee can decide to sanction the member, in which case the member can appeal the decision to the board. If the decision is either:

• suspension; or
• removal;

membership will be suspended immediately. The member will be removed from the FANZ register within 21 days of the decision if the sanction is removal from the association. Any other sanction will come into effect after 21 days. 

Why You Should Not Break the Franchsing Code

In case that you are suspended or removed from FANZ, your reputation will suffer. An important aspect that both franchisors and franchisees look for is membership in FANZ, as it binds you to the Code of Practice. This means you are more likely to be trustworthy when making business dealings. 

When you are removed from FANZ, you are required to notify either your franchisees or franchisor. You are also not allowed to claim that you are a member of FANZ. This may mean your franchisees might not see you as a responsible franchisor and could be inclined to sell their franchise. Depending on your franchise agreement, your franchisee may also be able to terminate your agreement. On the other side of the coin, if you are a franchisee, your franchisor may be able to terminate your agreement. 

Key Takeaways

The Franchise Association of New Zealand maintains a Code of Practice to regulate franchising in New Zealand. This is because there are no franchise-specific laws in New Zealand. All members of FANZ must abide by the Code, and as most franchisees and franchisors are members, it sets the standard in the community. However, if you are caught breaking any provisions in the Code, you may be liable for sanctions, including removal or suspension.

If you are unaware if you are breaking the Code or have any other issues relating to franchising, 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 447 119 or visit our membership page.

Frequently Asked Questions