The Legal Framework for Franchising in New Zealand: A Beginners Guide

The Legal Framework for Franchising in New Zealand: A Beginners Guide

Franchising has become a popular business model in New Zealand, with many entrepreneurs and investors opting to enter into franchise agreements to start or expand their businesses. Franchising offers a unique opportunity for entrepreneurs to operate a business using a proven system, established brand, and ongoing support from a franchisor. However, franchising is a regulated area of business in New Zealand, and it is essential for both franchisors and franchisees to understand the legal framework governing franchising and running a business in New Zealand to ensure compliance and protect their interests.

.

The legal framework for franchising  and operating a business in New Zealand primarily relies the following:

1. Franchise Association of New Zealand (FANZ) voluntary Code of Practice,
2. Fair Trading Act 1986.
3. Commerce Act 1986
4. Employment Relations Act 2000 and Health and Safety Legislation
5. Property, Resource Management
6. Tax Laws

Additionally, common law principles, contractual agreements, and other legislation may also apply to franchising arrangements.

The Franchise Association of New Zealand (FANZ) Code of Practice is a voluntary code of conduct that sets out the ethical and business standards for franchisors and franchisees in New Zealand. The Code aims to promote best practices in the franchising industry and provide guidance on the rights and obligations of franchisors and franchisees. While compliance with the FANZ Code of Practice is not mandatory, it is widely recognised and adhered to by most reputable franchisors in New Zealand. The Code covers various aspects of franchising, including disclosure requirements, franchise agreements, marketing and advertising, financial matters, and dispute resolution. It also requires franchisors to provide franchisees with detailed and transparent information about the franchise system, financial projections, and other relevant documentation before entering into a franchise agreement.

The Fair Trading Act 1986 is a key piece of legislation that governs franchising in New Zealand. Under this act, franchisors are prohibited from engaging in misleading or deceptive conduct, false representations, and unfair practices in their dealings with franchisees. This includes providing false or misleading information during the franchise sales process, misrepresenting the financial performance of the franchise system, or engaging in unconscionable conduct. The Fair Trading Act also requires franchisors to provide franchisees with accurate and complete disclosure documents, known as Franchise Disclosure Statements (FDS), which contain detailed information about the franchise system, the franchisor's financials, and any material risks associated with the franchise. Failure to comply with the disclosure requirements can result in severe penalties, including fines and compensation orders.

In addition to the FANZ Code of Practice and the Fair Trading Act, other laws and regulations may also apply to franchising arrangements in New Zealand. For example, the Commerce Act 1986 prohibits anti-competitive conduct, such as price-fixing, market allocation, and restrictive trade practices, which may impact franchising agreements. Franchisors and franchisees must ensure that their franchise agreements do not violate competition laws and are compliant with the Commerce Act. The Employment Relations Act 2000 also applies to franchising arrangements in New Zealand, and franchisors and franchisees must comply with employment laws, including minimum wage requirements, holiday and leave entitlements, and other employment rights. As a business owner, you are responsible for ensuring the health and safety of your employees and customers. New Zealand has robust health and safety laws, including the Health and Safety at Work Act 2015, which may impose obligations on you when buying or leasing a property for business purposes, such as conducting hazard assessments and implementing safety measures.

Property purchasing, leasing and development laws: The Property Law Act 2007 governs the legal aspects of buying or leasing a property for business purposes in New Zealand. This includes matters related to property ownership, title, boundaries, and registration of property interests. If you are leasing a property for business purposes, the provisions of the Commercial Leases Act 2010 and other relevant legislation apply. This includes regulations regarding rent, lease term, rights and obligations of landlords and tenants, rent reviews, and dispute resolution. New Zealand also has comprehensive resource management laws that regulate land use, development, and environmental considerations. These laws may impact the purchase or leasing of a property for business purposes, particularly if there are zoning restrictions, resource consents, or other environmental requirements that need to be complied with. New Zealand has building regulations that govern the construction, alteration, and maintenance of buildings. If you are purchasing or leasing a property for business purposes, you may need to ensure that the property meets relevant building code requirements, including accessibility, fire safety, and structural integrity.

Taxation Laws: When running a franchise business you will be subject to various tax laws in New Zealand, including  goods and services tax (GST), and income tax. It is important to understand your tax obligations and seek professional advice from an accountant to ensure compliance with relevant tax laws.

In addition common law principles also play a significant role in the legal framework for franchising in New Zealand. Common law principles, such as contract law, tort law, and agency law, provide a foundation for interpreting and enforcing franchise agreements and resolving disputes between franchisors and franchisees. For example, franchise agreements are typically considered contracts, and parties are bound by the terms and conditions of the agreement. If a dispute arises, common law principles of contract law, such as breach of contract or misrepresentation, may apply.

It is essential to note that laws and regulations are subject to change, and it is always advisable to seek legal advice before entering into any legal contract. If you are looking at buying selling or setting up a Franchise in New Zealand contact our team of experienced Franchise Lawyers today.