Franchise Agreements – What Do I Need To Know? (2026 Updated)

Buying a franchise can feel like a shortcut to running a business with a proven brand, set systems, and a customer base that already “gets it”.

But before you sign anything (or pay any upfront fees), it’s worth slowing down and getting clear on what a franchise agreement actually does, what you’re committing to, and what can go wrong if the documents aren’t right.

This guide is updated for current expectations around disclosure, digital operations, and brand protection, so you can go into your franchise decision with your eyes open and your legal foundations sorted from day one.

What Is A Franchise Agreement (And Why Does It Matter So Much)?

A franchise agreement is the main contract between a franchisor (the brand owner) and you as the franchisee (the person buying the right to operate under that brand).

It’s not just a “permission slip” to use a business name. A typical franchise agreement sets out:

• What you’re allowed to do (and what you’re not allowed to do)
• How you must run the business (systems, suppliers, branding, promotions, opening hours)
• What you pay (initial fee, ongoing royalties, marketing levies, tech fees, training fees)
• Where you can operate (territory and whether it’s exclusive)
• How long the franchise lasts and what happens at renewal or exit
• What happens if there’s a dispute or someone wants to end the relationship

Unlike many everyday commercial deals, franchising is designed to be a tightly controlled model. That’s why franchise agreements can be long, detailed, and strict. In practice, you’re buying into someone else’s system, and the agreement is how they protect that system.

That’s also why you shouldn’t treat the franchise agreement as “standard” or assume it’s non-negotiable. It might be common for franchisors to present a take-it-or-leave-it document, but you still need to understand the risk you’re taking on and whether the terms are workable for you.

What Should I Check Before Signing A Franchise Agreement?

If you only do one thing before signing, make it this: read the agreement like you’re planning to live with it for years (because you are).

Here are some of the key areas to check.

1. Your Territory And Competition Protections

Many franchisees assume they’ll get “their area” and be protected from competition. Sometimes that’s true, but the details matter.

Check:

• Is your territory exclusive or can the franchisor place another franchise nearby?
• Does “territory” include online sales, delivery zones, and third-party delivery apps?
• Can the franchisor sell through supermarkets, marketplaces, pop-ups, or corporate stores in your area?

A territory clause that looks good on paper can still leave you exposed if the franchisor is allowed to sell through alternative channels that effectively compete with you.

2. Fees (Including The Ones Not Obvious On Day One)

Franchise fees aren’t just “royalties”. Most agreements include multiple payment obligations, and the agreement usually gives the franchisor flexibility to change certain costs.

Common fee categories include:

• Initial franchise fee (often paid upfront)
• Ongoing royalty (percentage of revenue or fixed amount)
• Marketing levy (national or regional)
• Training fees (initial and ongoing)
• Technology / platform fees (POS, booking platforms, CRM subscriptions)
• Audit and compliance fees (sometimes payable if you’re “non-compliant”)

Also check what happens if you’re late paying any amount. Some agreements include default interest, penalty fees, or termination rights for repeated late payment.

3. Your Day-To-Day Operating Obligations

Franchising is all about consistency, so the franchisor will usually set strict operational rules. That can be helpful (you’re not reinventing the wheel), but it can also make the business feel less “yours” than you expect.

Look for clauses covering:

• Mandatory suppliers and minimum purchase requirements
• Fit-out and branding requirements
• Pricing controls (or recommended pricing and promotions)
• Reporting obligations (sales reports, financials, KPIs)
• Participation in marketing campaigns
• Opening hours and staffing levels

If you’ll be running a customer-facing location, the franchise agreement may overlap with your lease obligations too. It’s worth making sure your lease terms and franchise obligations don’t clash (for example, around hours, signage, or permitted use).

4. Intellectual Property (Brand Use, Restrictions, And Risk)

The franchisor will typically licence you to use their trade marks, branding, training materials, and other intellectual property.

You should check:

• Exactly what IP you can use and in what ways
• Whether you can run local social media pages and local advertising (and whether approval is required)
• What happens if the franchisor loses rights to a brand or gets into a trade mark dispute
• What you must stop using immediately when the agreement ends

This is one area where getting the drafting right really matters. A franchise can unravel quickly if there’s uncertainty over brand ownership, brand control, and how goodwill is handled.

5. Renewal And End-Of-Term Issues

Many franchisees assume they’ll just “renew” at the end of the term if things are going well. But renewal is often conditional.

Common renewal conditions include:

• You are not in breach (and have never been in serious breach)
• You sign the current franchise agreement (which may be different from what you signed originally)
• You refurbish the premises to current standards
• You complete refresher training

Make sure you understand what you’ll need to do (and pay) to renew, and whether you actually have a right to renew or only a “chance” to renew if the franchisor agrees.

What Laws And Compliance Issues Affect Franchising In New Zealand?

Franchise agreements are contracts, but franchising doesn’t exist in a legal vacuum. Your franchise operations will still need to comply with New Zealand’s general business laws.

Here are some key areas that commonly come up.

Fair Trading Act 1986 (Advertising And Misleading Conduct)

Under the Fair Trading Act 1986, businesses must not mislead or deceive customers (and that includes what you say in marketing, on signage, on social media, and in-store).

For franchisees, a common risk is relying on “head office” marketing without checking whether it fits your local context or whether claims are supportable. If you’re the entity trading with customers, you can still be on the hook if something is misleading.

Consumer Guarantees Act 1993 (If You Sell To Consumers)

If your franchise sells goods or services to consumers, the Consumer Guarantees Act 1993 will likely apply. That affects:

• Refunds and remedies for faulty goods
• Service quality standards (services must be carried out with reasonable care and skill)
• What you can and can’t say in your “no refunds” policies

Franchises often use standard scripts, signage, and policies. It’s important these don’t accidentally breach consumer law.

Privacy Act 2020 (Customer Data And Marketing Lists)

Most franchises now collect customer data in some form (loyalty programs, online bookings, delivery orders, mailing lists, CCTV, Wi-Fi tracking, or app ordering). The Privacy Act 2020 requires you to handle personal information responsibly.

This raises practical questions like:

• Who owns the customer database: you or the franchisor?
• Who can send marketing messages, and under what consent settings?
• What happens to customer data when your franchise ends?

If you’re collecting personal information directly, you’ll usually need clear documentation and processes in place, including a Privacy Policy that matches what you actually do.

Employment Law (If You’re Hiring Staff)

Many franchisees hire employees early, especially in hospitality, retail, health, and services. That means you’ll need to comply with New Zealand employment law around minimum entitlements, pay, leave, health and safety, and proper processes.

Even if the franchisor provides “template” employment documents, you should be confident they’re suitable for your business and up to date. In most cases, a tailored Employment Contract is a safer starting point than a one-size-fits-all document.

Health And Safety (Your Site, Your Responsibility)

If you’re operating a physical location, you’ll also have duties under the Health and Safety at Work Act 2015 (for example, managing risks, training staff, and responding to incidents). Franchisors may impose safety systems, but you can’t outsource your legal responsibilities.

This is a good example of why franchising is not “set and forget”: even with systems provided, you still need to run your business properly day to day.

What Are The Key Clauses In A Franchise Agreement?

Every franchise agreement is different, but most include a handful of clauses that have a major impact on your risk and flexibility.

Here are the clauses we recommend paying close attention to.

Term, Renewal, And Exit

This covers how long the franchise lasts, when it can be renewed, and what happens when it ends.

Also check:

• Do you have a “cooling off” period?
• Can you end early, and if so, what penalties apply?
• What happens if you want to sell the business?

If you plan to eventually sell, it’s worth thinking ahead about the transaction structure and what approvals you’ll need. Many franchise agreements restrict who you can sell to and require the buyer to be approved and trained. If a sale does happen, the paperwork often ties into the broader process of selling your business, including what happens to staff and employment arrangements.

Restraint Of Trade And Non-Compete Obligations

Most franchise agreements include restraints that limit what you can do during the agreement and for a period after it ends (for example, you can’t run a competing business).

Restraints need to be reasonable to be enforceable, but “reasonable” depends on the context, the duration, and the geographic scope. This is a common area where getting legal advice early can save you a lot of pain later.

Sometimes there’s also a standalone Non-Compete Agreement (or restraint-style clauses) used for key staff or managers. If you’re running a franchise with sensitive methods, training, or customer relationships, it’s worth making sure your employment documents match your commercial reality.

Manuals, Policies, And “The Rules Can Change” Clauses

Many franchisors operate using an operations manual (or several manuals) and a suite of policies. The franchise agreement often says:

• you must comply with the manual; and
• the franchisor can update the manual from time to time.

This is normal, but you should understand the practical impact. If the franchisor can change rules unilaterally, that can affect your costs and the way you run your business (for example, mandatory tech upgrades or new supplier requirements).

Ideally, the agreement should be clear about:

• how changes are notified
• whether franchisees get consultation on major changes
• whether changes can require significant capital expenditure

Termination Rights (And Default Clauses)

Franchise agreements usually include detailed termination rights for the franchisor if you breach the agreement.

Common triggers include:

• non-payment of fees
• failing audits
• repeated customer complaints or reputational damage
• unauthorised suppliers or products
• breaching confidentiality

Also check the process: do you get a chance to fix the breach (a “remedy period”), or can the franchisor terminate immediately for certain breaches?

This matters because termination isn’t just losing the brand. It can involve de-branding obligations, repayment clauses, and loss of goodwill you’ve built locally.

Transfer And Sale Provisions

If you later want to sell your franchise business, you’ll usually need the franchisor’s consent, and the buyer must meet training and approval requirements.

It’s worth checking:

• what fees apply on transfer
• whether you must use the franchisor’s sale process
• whether the franchisor has a right of first refusal
• whether you must upgrade the business before sale

These clauses affect how easy it is to exit, and how much value you can realistically realise at sale time.

What Other Documents Might I Need Alongside A Franchise Agreement?

The franchise agreement is the centrepiece, but it’s rarely the only document you’ll deal with. Depending on your setup, you may also need:

• Lease documents (if you’re taking premises) and sometimes assignment or surrender documents if you’re moving or exiting
• Business purchase documents (if you’re buying an existing franchise business rather than starting fresh)
• Finance documents (personal guarantees, security interests, bank facility documents)
• Supplier contracts (if you’re allowed to engage local suppliers)
• Employment contracts and policies (if you’re hiring)
• Privacy and marketing documents (especially if you collect customer data)

If you’re buying an existing franchise, the transaction may involve an asset purchase, stock purchase, or a mix of both. You’ll want the legal paperwork to reflect what you’re actually buying (equipment, stock, customer lists, lease rights, licences) and what liabilities you’re not taking on. In many cases, the right structure is documented through an Asset Sale Agreement.

And if you’re operating through a company (which is common for franchising), you’ll also want your internal governance sorted, particularly if you have multiple owners or investors. That can include a Company Constitution and, where relevant, a Shareholders Agreement so everyone is clear on decision-making, dividends, exits, and what happens if there’s a dispute between owners.

It can feel like a lot, but the upside is simple: if your documents match your reality, you’re far less likely to get stuck in a messy dispute later.

Key Takeaways

• A franchise agreement is a long-term contract that controls how you operate, what you pay, how you use the brand, and what happens if the relationship ends.
• Before signing, check the practical “deal breakers” like territory protections, total fees, operational restrictions, renewal conditions, and termination rights.
• Franchise businesses still need to comply with core NZ laws like the Fair Trading Act 1986, Consumer Guarantees Act 1993, Privacy Act 2020, employment law, and health and safety obligations.
• Pay close attention to clauses around restraints of trade, changing operations manuals, default/termination processes, and sale/transfer restrictions, because these can significantly affect your flexibility and exit options.
• You may need additional documents alongside the franchise agreement, such as lease documents, purchase agreements, privacy documentation, and employment contracts to protect your business from day one.
• Even if a franchisor says their agreement is “standard”, it’s still worth getting it reviewed so you understand the risks and what you’re committing to before you sign.

If you’d like help reviewing a franchise agreement (or you’re negotiating a franchise purchase and want to make sure you’re protected from day one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.