Buying a Franchise Resale in New Zealand: What to Check Beyond the Numbers

Why a franchise resale is its own thing

Buying an established franchise can be a fast track to operating a known brand with a documented system, an existing customer base and trained staff. It can also be a trap if the franchise agreement, the franchisor's posture, and the specific economics of the unit aren't well understood before you sign.

This article walks through the additional layer of due diligence required for franchise resales in New Zealand — on top of all the ordinary commercial DD you would do for any business purchase.

Franchisor consent: the gatekeeper

Almost every NZ franchise agreement requires the franchisor's written consent to a transfer of the franchise to a new operator. The franchisor's consent is usually subject to:

The new franchisee meeting the franchisor's standard selection criteria (financial capacity, experience, personal interview).
Completion of the franchisor's training programme.
Payment of a transfer fee (commonly 1% to 5% of the sale price, sometimes a flat amount).
The new franchisee signing the franchisor's current standard franchise agreement — which may have materially different terms from the one the vendor is selling under.
The premises (if applicable) meeting current brand standards, often requiring a refurbishment investment.

That last point — signing the current agreement — is one of the most commonly missed traps. The agreement you sign as the buyer may have a shorter term, a higher royalty, broader restraints, or new digital/data obligations that the vendor's agreement didn't have.

Get the current franchise agreement, early

Before you spend money on legal or accounting DD, ask for:

The vendor's existing franchise agreement (with the vendor's consent).
The current standard franchise agreement the franchisor would require you to sign.
The Disclosure Document or equivalent the franchisor provides to prospective new franchisees.

Read all three. The most important is the current standard agreement — that is the contract you would be signing, not the one the vendor has been operating under. The differences can change the unit economics materially.

Term, renewal, and "tail risk"

A franchise sale where there are 18 months left on the current term, with renewal at the franchisor's discretion, is a fundamentally different proposition from one with 10 years secure.

What to confirm:

Remaining term of the franchise agreement.
Whether renewal is a right or a discretion of the franchisor.
Conditions on renewal (refurbishment, current-form agreement, royalty changes).
Whether the franchisor has the right to terminate, buy back, or refuse renewal in certain circumstances.

A short-term franchise with discretionary renewal should be valued accordingly. Most experienced buyers will not pay strong multiples on the goodwill of a business that may not exist in two years.

Territory protection and exclusivity

Different franchise systems treat territory very differently. Confirm:

Is there an exclusive territory assigned to this franchisee?
What's the franchisor's right to operate company-owned outlets in or near it?
What's the franchisor's policy on online sales routing — do online customers in your territory generate revenue for you, or for head office?
What digital channels (delivery platforms, click-and-collect, app orders) are controlled by the franchisor?

A territory that looked exclusive on paper but is being eroded by digital channels can produce nasty surprises.

Royalties, marketing levies, and required spend

Beyond the headline royalty, look for:

Marketing levy (national fund contribution), and whether the franchisor accounts for how it's spent.
Required local marketing spend as a percentage of revenue.
Required minimum purchases from approved suppliers, and whether the franchisor receives rebates from those suppliers.
Required technology or POS subscriptions with minimum spend commitments.
Required participation in promotions (which may compress unit margins).

Add all of this to your model. The difference between a 6% royalty and an "all-in" 11% obligated cost base changes the cash you actually take home.

Refurbishment obligations

Most franchise systems require periodic refurbishment to current brand standards, often at the franchisee's cost. Sometimes refurbishment is timed to coincide with renewal, sometimes triggered by elapsed years, sometimes at the franchisor's discretion.

If the unit is due for refurbishment in the next 12 to 24 months, get a written estimate from the franchisor of what will be required and what it will cost. A six-figure refurbishment shortly after settlement, that the vendor didn't disclose, is a price-adjustment conversation that should happen during DD.

The Franchise Association of New Zealand code

The Franchise Association of New Zealand (FANZ) maintains a Code of Practice that members are required to follow. The Code covers disclosure standards, cooling-off periods, dispute resolution, and conduct. Not all NZ franchisors are FANZ members — there is no legal requirement to be — but FANZ membership is a useful signal of franchisor maturity.

If the franchisor is a FANZ member, the Code applies to your dealings and to the disclosure you should receive. If they are not, you have less default protection and need to lean harder on your own legal advice.

DD specific to franchised systems

In addition to standard business DD, ask the franchisor (and the vendor) for:

The full system unit-economics summary (anonymised peer benchmarking is sometimes available).
A list of franchisees who have left the system in the last three years, and the reasons given.
Open or recent disputes between the franchisor and franchisees.
Any system-wide changes planned (new technology platform, supplier change, brand refresh) that will affect the unit.
Restraint of trade clauses you would be bound by, both during the term and after exit.

What this means for you

Before paying any deposit on a franchise resale:

Read the current standard franchise agreement, not just the vendor's existing one.
Speak directly to three to five current franchisees in the same system, ideally chosen by you, not by the franchisor.
Get a written refurbishment and transfer-fee schedule from the franchisor.
Model the all-in cost base including royalty, marketing, required spend, and required refurbishment.
Use a lawyer with active franchise practice — not just a generalist.

Done well, a franchise resale can be one of the lowest-risk ways into business ownership. Done poorly, it is one of the easiest ways to be locked into a structure that doesn't suit you.

General information only — franchise agreements vary enormously; engage a lawyer with franchise expertise before signing anything, including a Heads of Agreement.