QUITTING IS NOT AN OPTION

A decision from the High Court of New Zealand in the case of Green Acres Franchise Group Limited v Manjit Corporation Limited [2026] NZHC 2375 (13 August 2026) has left the defendants (two separate franchisees) respectively liable for sums of $97,123.95 and $62,894.55 payable to the franchisor in lieu of fixed weekly royalties and a fixed brand levy that would have been payable over more than 18 years remaining on their franchise agreements.

The circumstances behind this decision could have been easily avoided if the franchisees had sought franchise-experienced legal advice before signing their original contracts, giving them a proper understanding of the obligations of both parties. This prior understanding is part of a franchise buyer’s due diligence and is something that Franchise New Zealand media and the Franchise Association of New Zealand (FANZ) are always talking about – for very good reason.

Briefly, each franchisee had entered into a separate agreement with Green Acres in early 2024 for a 20-year contract to operate home and commercial cleaning franchises under the Green Acres brand in the Wellington area. Each franchise agreement contained a “turnover guarantee” clause, for an average weekly income figure which was due to be assessed two years after each franchisee’s training finished. In November 2025, before the end of that two-year period, one lawyer acting for both franchisees sent letters to Green Acres cancelling their agreements, alleging Green Acres had breached the agreement by not providing the specified weekly income. 

Unfortunately, according to the judge’s findings, neither the franchisees nor their lawyer had interpreted the turnover guarantee clause correctly, and Green Acres was simply not yet liable for any income “top up” amount. Green Acres’ own lawyer replied that the termination was invalid, gave the franchisees one day to change their minds, and then issued their own cancellation notice, on the basis that the franchisees were themselves in breach of the contract by not performing their contracted duties. 

What are income guarantees?

In franchise contracts or agreements, guarantees are not common outside the commercial cleaning sector, but many if not most franchises in this industry seem to offer some form of work, turnover, or income guarantee clause in their agreements. One franchisor we spoke to said they would rather not, but for competitive purposes it was impossible to avoid. However, the details of these clauses vary widely, and most have quite particular conditions attached, which the franchise buyer should have clearly explained by a franchise-experienced lawyer before signing the contract.

In the Green Acres case for instance, as Associate Judge Lester pointed out, “These were not franchise agreements where the franchisees were supplied with an existing list of customers. There was no guaranteed work from day one. A franchisee under these agreements has to ensure they have sufficient capital to meet the fixed outgoings under the franchise agreements until they build up their business.”

If the franchisees in question had clearly understood this obligation on their part, they would never have tried to walk away from their businesses. At the two-year mark, there would have been an assessment of their average weekly income so far, from work both referred to them by Green Acres and found by the franchisees in their own business marketing activities. If the assessment found their average weekly income fell short of the agreed amount, and if all the other conditions of their agreement had been met, there was potential for an income “top up” by Green Acres. 

If the franchisees were unhappy with the outcome of the two-year assessment, they could then have challenged it. And then, if they were unhappy with that result, they could have sold their businesses to a new franchisee, which would have resulted in them receiving at least some return on their investment, plus any income received along the way, and with no further obligation to the franchisor. 

As it was, by choosing to simply end their contracts early, the franchisees put themselves in a much worse position.

Why did the franchisees have to pay future franchise fees?

Khushbu Sundarji is a Board member of FANZ and a partner at SGL, one of the most experienced franchise law firms in New Zealand. She said that the franchisor in this case would have been acting to protect the franchise brand by enforcing the contract terms – and, importantly, sending a message to other potential or existing franchisees about the consequences of simply abandoning their contracts. 

Khushbu explained that the franchisor under a franchise agreement is entitled to rely on specified due payments of a regular nature over the term of the contract. The weekly amounts owed in fixed fees by the two Green Acres franchisees were relatively modest, but when compounded over the remaining term of the agreement these added up to tens of thousands of dollars. 

Khushbu also pointed out that such a long term (20 years) is not common in New Zealand franchise agreements, with a shorter term of, for example, five years, plus the option to renew for a further one to two terms being more standard. On one hand, the longer term has greater value to the franchisee if selling their business as a going concern, but on the other hand, it carries greater risk if, as in this case, the franchisees choose to abandon the agreement. Again, Khushbu emphasised the importance of doing proper due diligence with experienced advisors before entering into any franchise agreement.

You can read the full case notes from Green Acres Franchise Group Limited v Manjit Corporation Limited [2026] NZHC 2375 (13 August 2026) at https://www.nzlii.org/cgi-bin/viewdoc/nz/cases/NZHC/2026/2375.html 

Read also:

Franchise Agreement Advice - Why do you need a lawyer to check a franchise agreement before you sign?

The Benefits and Risks of Income Guarantees - legal considerations and best practices to follow.