What Are the Requirements Under the NZ Franchising Code of Practice?

In Short

• FANZ membership supports best franchising practices with a Code of Practice that boosts your credibility.
• The Code mandates a cooling-off period, disclosure documents, and a clear dispute resolution process.
• FANZ members must comply with the Code of Practice and provide it to franchisees before agreements.

Tips for Businesses

Joining the Franchise Association of New Zealand can enhance your credibility and provide useful resources. Ensure compliance with the Code by including a cooling-off period, providing thorough disclosure documents, and following dispute resolution guidelines to protect both franchisors and franchisees.

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Table of Contents

• What Is the Franchising New Zealand Code of Practice?
• Have a Cooling-Off Period
• Provide a Franchise Disclosure Document
• Dispute Resolution Practices
• Other Obligations
• Key Takeaways 
• Frequently Asked Questions

If you are looking to buy, start or sell a franchise in New Zealand, you should become familiar with the Franchise Association of New Zealand’s Code of Practice. The Franchise Association of New Zealand (FANZ) is the peak body for franchising in New Zealand. It helps set guidelines for best franchising practices. Even though it is not a legal requirement to join FANZ, it is a good idea to join. This is because it will provide access to their resources and boost your reputation. As a member of FANZ, you must adhere to their Code of Practice (the Code). This helps to regulate the franchising process in New Zealand. This article will discuss:

• your rights under the Code; and 
• how to make sure that you are following your obligations. 

What Is the Franchising New Zealand Code of Practice?

FANZ defines the purpose of the Code as: “to promote high standards of Franchising conduct and procedure in accordance with the objects of the Association”. This is to help make sure that all parties in a franchising agreement are treated fairly. 

Have a Cooling-Off Period

Under the Code, all franchise agreements must have a cooling-off period. A cooling-off period is a timeframe in which a franchisee can withdraw from their franchise agreement after they have signed it. This is so franchisees are not bound to the agreement if they feel rushed into it. The Code requires the cooling-off period to be at least seven days from when the party signed the agreement. If a franchisee activates this provision, then they are immediately unbound from all provisions in the agreement other than those relating to confidentiality and intellectual property.  

Provide a Franchise Disclosure Document

As a franchisor, you must also provide your prospective franchisees with a disclosure document under the Code. A disclosure document contains any information about the current franchisor/franchisee relationship and gives the franchisee the necessary information to make an informed decision. The disclosure document should specifically contain:

• an outline of the system;
• intellectual property particulars;
• details of franchise fees;
• supplier and distributor terms;
• relevant financial information;
• conditions relating to termination, assignment and renewal;
• any refundable payments; and
• summary of the obligations of the franchisor.

Dispute Resolution Practices

Under the Code, all franchise agreements must contain a provision that allows for dispute resolution practices to be undertaken in the event of a dispute arising. Further, the Code outlines the process for resolving a dispute without having to resort to court proceedings. 

If a dispute takes place between the franchisor and the franchisee, the parties should strive to resolve this through negotiation. However, if within 21 days of the dispute arising, the dispute is still not resolved, either party can write to have the dispute resolved by mediation. Mediation is a dispute resolution process in which a neutral third party helps the parties resolve their dispute. If, within 45 days of referral to mediation, the parties have still not resolved their issue, either party may commence court proceedings.

Other Obligations

As a member of FANZ, you must supply your franchisee with the Code of Practice and the Code of Ethics at least seven days before the signing of the franchise agreement. All franchise agreements must also have provisions that require both the franchisor and the franchisee to comply with both codes.

Key Takeaways 

Joining the Franchise Association of New Zealand is a great way to boost your reputation as either a franchisor or a franchisee in New Zealand. Additionally, it allows you to use their helpful resources and gives you the opportunity to connect and network with other people in the franchising community. As a member of FANZ, you are bound by their Code of Practice. The Code helps regulate the relationship between a franchisee and franchisor whilst maintaining the rights of either party. Some of the things that the Code requires includes:

• a cooling-off period for new franchise agreements;
• a franchise disclosure document to be given to franchisees;
• dispute resolution practices; and
• other obligations.

If you are looking to join FANZ, head to their website and fill out the application form.

If you are looking to buy, start or sell a franchise in New Zealand, 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