What Do Franchisees Typically Have To Pay To The Franchisor? (2025 Updated)

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If you are considering buying a franchise business in 2025, it is important that you know what fees you will have to pay to the franchisor.

There are various fees involved with buying a franchise business. Knowing which ones to expect can be incredibly helpful when planning your investment, particularly as industry practices and regulatory standards evolve over time.

Let’s break down franchise fees and what they mean for you and your business. We’ll also explain how staying on top of these fees and ensuring your agreement is updated according to the latest guidelines can secure your business’s future.

What Are The Initial Costs Of Buying A Franchise?

Once you have signed your Franchise Agreement, it is common practice to pay your initial franchise fee.

An initial franchise fee is generally an upfront fixed amount, paid in a lump sum to the franchisor. This fee covers the basics including establishing the franchise relationship, access to proprietary franchise operating systems, training services and essential marketing materials.

The exact initial franchise fee will depend on the particular franchise business that you decide to purchase. Industries and companies vary considerably in their fee structures, so ensuring you conduct thorough research – perhaps consulting resources such as our Business Start-Up Guide – is always a great idea before entering into any Franchise Agreement.

What Are The Franchisee’s Fit Out Fees?

A franchisee’s fit out fee is the cost associated with having your franchised business completely fitted out and operational. Generally, the franchisor will organise the fit out of your business premises, while you, the franchisee, pay a fee to compensate the franchisor for the services provided.

This fee typically covers the costs of all the equipment, infrastructure and branding necessary for your establishment to be ‘set up.’

For example, if your franchise business is in the hospitality sector, your fit out fees may include costs for an industrial kitchen installation, a bar set up, essential operating equipment such as a cash register, and tailored branding such as business signage. The overall fee will depend on the scale and specific requirements of the franchise, so it is wise to compare standards in your industry.

What Are The Franchisee’s Legal Costs?

A franchisee is typically required to pay for the legal fees that directly relate to the preparation, negotiation and execution of the Franchise Agreement. In New Zealand, both the Fair Trading Act and the Franchise Association of New Zealand (FANZ) Code of Practice (updated for 2025 guidelines) provide important frameworks for franchising practices.

It is important to note that while the FANZ Code of Practice is not legally binding, it sets out best practice standards that reputable franchisors in New Zealand should follow. This includes the requirement to be transparent about any legal costs that may be passed on to the franchisee. Reputable franchisors will provide a disclosure document which outlines all associated costs – including any legal fees – before you commit. We recommend giving this document a careful review; alternatively, our Legal Tips section offers further guidance on what to look out for.

Under current best practice guidelines in New Zealand, a franchisee is only required to pay legal fees incurred during the preparation, negotiation or execution of the Franchise Agreement. Any legal costs incurred by the franchisor after the agreement is signed – such as for a termination notice, breach notice, renewal notice or other documents – should not be transferred to the franchisee.

Are There Any Ongoing Franchise Fees?

Yes, there are ongoing fees to consider. As your business operates under the franchised business model, you will be required to pay ongoing fees to the franchisor to maintain the relationship and to benefit from the established brand and support systems.

Ongoing fees may include:

The cost of maintaining an ongoing relationship with the franchisor;
Usage fees for operating under the franchised business name;
Royalties, which are often calculated as a percentage of your sales or profits;
Marketing or advertising contributions;
Administration costs; and
Information Technology (IT) expenses.

These fees are usually structured either as fixed monthly payments or as a variable charge based on a percentage of your sales or profit – sometimes even on an annual basis, such as for royalty payments. Some franchisors may require fixed monthly contributions towards administration and IT, while others calculate fees at quarter- or annual intervals. It is imperative to understand these arrangements as detailed in your Franchise Agreement, so you can plan your cash flow accordingly.

Regularly reviewing your ongoing fee structure is vital; this ensures that you are not only meeting your financial obligations but also receiving the expected support and value for the fees paid. For more insights on managing your finances, consider our Getting Finance resources.

What About Fees In Relation To The Lease?

Depending on the nature of your franchise business, you may either be responsible for arranging your business lease or benefit from the franchisor’s assistance in securing a location. Often, franchisors provide guidance in negotiating favourable lease terms and share insights from other franchisees on securing a productive space.

Alternatively, the franchisor may sign the lease on your behalf – in this case, they become the lessee and handle the lease terms directly. However, whether you enter into the lease yourself or the franchisor does so on your behalf, additional costs such as rent, insurance, repairs and maintenance fees will likely apply. For further guidance, our article on How To Lease Commercial Retail Space offers comprehensive details.

It is critical to ensure that any fees related to the lease are clearly documented in your Franchise Agreement. This not only protects you from unforeseen expenses but also clarifies your obligations from the outset.

What’s A Fair Fee, Is Due Diligence Important?

Absolutely. Exercising your due diligence will help you ensure that the fees you are required to pay are fair and reasonable. The fee structures vary significantly across different industries and franchise models. It is essential to research, compare, and even consult with experts or experienced franchisees before moving forward.

Having a professional lawyer draft or review your Franchise Agreement is always a good idea to ensure that you are meeting all of your obligations as a franchisee, and to prevent any unfair terms from being imposed on you. Our Starting a Courier Company guide and other resources on our site can provide further context on how structured agreements benefit your business.

Moreover, staying updated with the latest regulatory changes and best practice standards, such as the revised recommendations for 2025 from the Franchise Association of New Zealand, will help ensure your fees remain competitive and justified in the current market.

Franchising Resources

Laws around franchising can be quite complex, and this area requires expert legal input. We have a number of resources to guide you through various stages of the franchising process, such as:

Need Help?

We’re here to help!

Having your Franchise Agreement drafted or reviewed by a professional lawyer can ensure that you enter into a fair and balanced arrangement. With evolving franchise practices in 2025, rest assured that our team stays on top of current trends and regulatory updates to offer you the best possible advice.

At Sprintlaw, we can help you review your Franchise Agreement quickly and efficiently. Check out our Contracts and Startups pages for more information on ongoing legal support.

Reach out to our team for a free, no-obligations chat at [email protected] or call 0800 002 184.

Bella Duncan

Bella has experience in boutique and large law firms with particular interest in privacy and business law. She is currently studying a double degree in Law and Psychology at Macquarie University.