In New Zealand, franchising is notoriously under-regulated.  It is effectively governed by contract law principles, while internationally, including in Australia, it is addressed through specific laws.

There are no plans for specific franchise regulation in New Zealand, however a degree of regulation may be coming via the Ministry of Business, Innovation and Employment (MBIE) Discussion Paper, “Protecting Businesses and Consumers from Unfair Commercial Practices”.

Unfair Contract terms – protection extended to businesses?

For some time the Fair Trading Act has protected consumers from entering into standard form contracts with unfair terms.

Standard form contracts are those offered on a “take it or leave it” basis with no opportunity for negotiation, much like most Franchise Agreements.

However, these consumer protections do not currently apply to contracts between businesses. This is because business-people, so the logic goes, are able to look after themselves and take big risks where appropriate.

This is obviously not always the case and so MBIE is proposing to make changes.

Clauses in Supplier or Franchise agreements that limit (or even exclude) liability, allow for unilateral fee increases or changes in product specifications will likely be deemed “unfair.”

The aim is for similar protections against unfair contract terms to assist businesses, particularly small businesses, to be able to better negotiate what are effectively standard form contracts. These include contracts such as those with suppliers, but the changes (if made) will likely also impact Franchisors.

Franchise Agreements – Unfair?

Over the course of many years, and without regulation, Franchise Agreements have become more onerous and one-sided. The lack of rules, particularly around fairness, has been allowing some franchisors (particularly those with well-established franchise systems) to include terms favourable only to them. 

It is important that businesses who enter into contracts do so on terms that are fair.  Until the outcomes of the MBIE Discussion Paper are known we recommend that you seek legal advice to review the terms in the contract and assist in negotiating the terms in your favour.

Claire Tyler
Commercial Lawyer