Franchising is a popular business model in New Zealand, offering aspiring entrepreneurs the opportunity to operate under an established brand with a proven system. One of the first and most significant costs encountered in this process is the franchise fee — a lump sum paid to the franchisor to gain access to the business system, brand name, training, and initial support. A common concern among prospective franchisees is whether this fee is refundable if the agreement falls through or if the business fails to perform as expected. Understanding how franchise fees work and the legal landscape surrounding them in New Zealand is crucial before making such a financial commitment.
What Franchise Fees Typically Cover
The franchise fee is generally paid at the outset of the franchise relationship and is used to cover the franchisor’s initial expenses, such as training, onboarding, business setup assistance, and granting access to intellectual property. It is often treated as a sunk cost — meaning once it is paid and the services have been rendered, it is not returned, regardless of what happens next. In many cases, even if the franchisee changes their mind or the agreement is terminated, the franchisor will have already invested time and resources that they are unlikely to recoup without retaining the fee.
Terms Are Set by the Franchise Agreement
The refundability of franchise fees in New Zealand is determined primarily by the specific terms laid out in the franchise agreement. There is no automatic right to a refund unless it is clearly provided for in writing. Some franchise agreements may include conditional clauses allowing for a partial or full refund if certain events occur, such as the failure to secure premises or meet specific pre-conditions like financing approval. However, in the vast majority of cases, the agreement will state that the franchise fee is non-refundable once the contract has been signed and onboarding begins.
The Absence of Franchise-Specific Legislation
Unlike countries such as Australia or the United States, New Zealand does not have dedicated franchising legislation. This means franchise relationships are governed by general contract and commercial law. Because of this, franchisees must rely entirely on the franchise agreement for clarity on refunds and termination rights. Some franchisors who are members of the Quality Franchise Association New Zealand (QFA) may adhere to a voluntary code of conduct, which promotes transparency and fair dealing, but this is not legally binding for non-members. This legal environment makes it all the more important for franchisees to seek independent legal advice before signing any documents.
Cooling-Off Periods and Voluntary Refunds
While New Zealand law does not require a mandatory cooling-off period for franchise agreements, some franchisors may include one voluntarily. A cooling-off period allows the franchisee to exit the agreement within a short timeframe — often between five and ten business days — with the possibility of a partial or full refund. However, this is entirely up to the franchisor and should never be assumed unless explicitly stated in the agreement. Even when a cooling-off period exists, deductions may apply to cover administrative or legal costs incurred by the franchisor during that time.
When Legal Remedies May Apply
In rare cases, a franchisee may have legal grounds to claim a refund if the franchisor has engaged in misleading or deceptive conduct. If the opportunity was misrepresented during the sales process, or if the franchisor fails to deliver on key promises or support, the franchisee may have the right to seek compensation through legal action. Disputes of this nature can be pursued through the Disputes Tribunal or the courts, though this can be time-consuming and costly without guaranteed outcomes.
Conclusion
Franchise fees in New Zealand are typically non-refundable, especially once the agreement has been signed and onboarding has commenced. Whether any refund is possible depends entirely on the franchise agreement and the specific circumstances surrounding the exit. With no dedicated franchising law to fall back on, prospective franchisees must rely on careful due diligence, independent legal advice, and clear contractual terms to protect their financial interests. Ultimately, entering into a franchise should be approached with the same caution as any major business investment — fully informed and fully prepared.
