Changes to legislation usually tighten existing regulations. Recent changes to the provisions of the Competition and Consumer Act 2010 (Act) covering third line forcing are a pleasant departure from this norm. ...
A lawyer can seem like an unnecessary expense when buying a franchise with so many other costs to consider. Remember that buying a business is one of the biggest decisions you’ll make in your life. Legal advice should be considered as an investment. Like any investment, there are a number of key ways to secure a good return. ...
Like any business, once you establish your franchise the ideal goal is to build goodwill then on-sell it in the future for a profit. Whilst this may not be your short-term goal, it should nevertheless be kept in mind. ...
This Article was previously published on the Inside Franchise Business website.
How to handle renewals with a difficult franchisee
Entering a Franchise Agreement (Agreement) with a franchisee is a commitment for the term of the franchise. Dealing with a difficult franchisee can be problematic when locked into a contract and trying to maintain a business relationship. Whether it’s a clash of personalities or contrasting business values, a franchise relationship can easily become strained. ...
On 5 September 2017, the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 passed both Houses of Parliament. Once the Bill receives Royal Assent, this legislation will have massive ramifications on the franchising industry. ...
This Article was previously published in the July/August print edition of Franchise Business Magazine.
If it looks like a duck, walks like a duck and quacks like a duck, it probably is a duck. The same reasoning can be applied to whether a licence agreement constitutes a franchise agreement - it is a matter of substance over form. ...
When a franchisee chooses to enter to a franchise their decision will be largely based on the reputation and success of that system. Unfortunately, even the most reputable systems can fail and franchisees can be left questioning whether they can keep their business. This situation has recently been highlighted through the current appointment of administrators to Eagle Boys, but of course Eagle Boys may work through the administration.
When a franchisor becomes bankrupt or has liquidators appointed (aka ‘goes bust’), the consequences will depend on the circumstances.
Who owns the IP
In most franchise systems the franchisor does not own the intellectual property. This is generally made up of the brand, trademarks, business names and other registered intellectual property to which value is attributed and goodwill has grown. A separate company (IP holding company) is usually set up for the sole purpose to own the intellectual property. The IP holding company will licence the use of the intellectual property to the franchisor. If the franchisor ‘goes bust’, then the IP holding company can sever the licence. This means that ownership of the IP is retained by the IP holding company and is protected, but the franchisor and franchisees effectively lose the right to use the intellectual property.
An option before signing the Franchise Agreement is to attempt to negotiate an agreement between the IP holding company and the franchisee covering the event of the franchisor failing. The IP holding company can step up and enter into an agreement, whether it be a licence or otherwise, with the franchisee enabling the franchisee to continue trading under the brand using the intellectual property in an attempt to minimise the disruption to the franchisee’s business.
What are the franchisee’s rights under the Franchise Agreement?
Franchise Agreements usually do not provide any rights for a franchisee if a franchisor becomes insolvent or fails in any other way. It is usually ...
Entering into a Franchise Agreement is a long-term commitment, and making wrong decisions can affect your bank balance, health and your relationships.
Before you sign on the dotted line, here’s some important steps you can take to minimise your risk.
It’s a good idea to think strongly about whether you want to run a franchised business. Remember that in a franchise, you must follow the rules laid down by the franchisor. These can be strict, and you might find yourself dealing with more red tape than expected.
If you are opening a franchised business at a greenfield site, you also need to ensure that you have sufficient capital to start a business. This includes the ability to survive any losses you may incur while you build your franchise. Make sure that you have the capability to raise finance, and decide whether you are prepared to put your assets at risk.
Choose the right franchise
Whilst you may have your heart set on a particular franchise, there are many great options to pick from. Ask yourself:
- What is the franchisor’s business background and experience?
- How long has the system been in operation?
- How many franchisees are there?
- How many franchisees have started, sold or ceased to operate within the past year?
- How extensive is the training provided?
- What are the fees, both upfront and ongoing?
- What support does the franchisor provide in exchange for your fees?
Before you sign a franchise agreement, the franchisor is required to provide you with a disclosure document. In an ideal world, this will provide answers to many of the questions above. A key part of any disclosure document is the contact details for existing and former franchisees. It’s a good idea to contact as many current franchisees as you can, and find out whether they are happy with their business. Be smart about this -- don’t ...
What You Need To Know About Signing A Lease
A lease is a legally binding agreement to pay specific fees for a set term. Just like franchise agreements, are governed by the Franchising Code of Conduct (Code), leases have their own guidelines.
In Queensland, businesses that are retail in nature and/or situated in a retail shopping centre are subject to the Retail Shop Leases Act 1994 (RSLA). There is similar legislation in other states and territories.
Before signing a lease, there are some important considerations.
1. Offer to lease
The time to negotiate the key terms of the lease, such as rent, reviews and costs, will be in the offer or agreement to lease (OTL). When you sign an OTL you’ll commonly pay a deposit of one month’s rent. Whether the OTL is binding on you will depend on how the document is drafted. If you have a change of mind, you may be able to pull out of the OTL and only forgo your deposit.
2. Legal and accounting advice
If the RSLA applies, you must obtain advice from both a lawyer and an accountant and provide the landlord with certificates from your advisors. Even if the RSLA does not apply, it is prudent to still obtain legal advice because every lease is different and will usually be drafted heavily in favour of the landlord. Remember, there is always room for negotiation of troublesome clauses.
3. Due diligence and disclosure statements
Just like a franchise agreement, carrying out due diligence before signing a lease is vital. The landlord will not warrant that the premises are suitable for your business, therefore you need to determine the suitability of the location and whether the rent is reasonable.
If the RSLA applies, the landlord must provide you a Disclosure Statement which outlines various details about the premises and its location.
For retail leases, ...