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Urgent Advice to Retail Tenants - Practical Considerations
Robert Toth | Franchise Law Specialist, Wollermann Franchise Developments
Prime Minister Scott Morrison announced a six month moratorium on evictions in relation to commercial and residential tenancies, where it arises from financial hardship related to COVID -19.
There were no other prescriptive measures or directives other than landlords and tenants should communicate and reach an agreement whether it be for a suspension of rent or abatement of a part or all of the rent.
If your business has been ordered to shut down then, of course, you have no option to do so.
What to do now
If you have a private landlord or an agent acting for a landlord contact them and confirm you are no longer able to trade.
A call is fine but follow it up in writing (an email is fine) to confirm that is the case.
Ask them for an abatement of rent while you are unable to trade.
An abatement means a reduction of the rent either fully or partially and that the Landlord cannot then later come back to you and ask for that rent to be paid.
A suspension of rent or deferring rent (not a tenant’s preferred option) means you are still liable to pay that rent once the suspension if over so it remains a liability you will have to meet, and the issue is how will that be paid.
A landlord could then at a later stage claim it against the security deposit or bank guarantee so be clear and careful as to what relief you are seeking and what is agreed!
Shopping centre managers will likely try to have you agree to a suspension or deferment- don’t agree to this.
If a landlord or shopping centre management asks you to sign any document whether a letter, authority, acknowledgement be careful and get advice before you sign it, as you may be locking yourself into a long term more difficult position.
We know that some centre’s and landlords are still sending invoices to retail tenants for next month’s rent showing no sign of support whatsoever.
The six month moratorium is on evicting tenant’s it does not address the issue that you are still liable for the rent unpaid.
The Government has not directed that landlords must reduce or hold payment of rents.
The best thing is to have open and immediate communication with the landlord or the agent politely and professionally but ensure it is in writing.
Should I close the doors and remove all my stock?
A temporary closure would not usually involve your removing your stock and vacating the premises.
If you remove your stock fixtures and fittings that would be an indication you have abandoned your lease and puts you in breach.
The landlord may then accept your action and decide to terminate the lease or keep the lease on foot and continue to claim rent.
This places your security deposit or bank guarantee at risk and also enables the landlord to claim for refit fees, loss or rent and other damages.
If closing the store place, a note on the window for customers "temporary closure due to Government direction and Coronavirus”.
Then take a photo of the front of the store with your stock and the sign - Why? It shows you have not abandoned the premises but only temporarily closed.
Can I rely on the Force Majeure clause in your lease?
The answer, in short, is no.
Also, it is unlikely a tenant can rely on the doctrine of frustration to end the lease and who has the time and money to go to court to seek an order anyway?
It is a matter of communicating and reaching an agreement with your landlord.
Be transparent and provide any supporting information the Landlord or agent may reasonably require.
Don’t forget to seek legal advice during these difficult times as your Lawyer is here to help you during the good and tough times
Wollermann Franchise Developments is a relatively new arm to the Wollermann organization, but we have engaged a highly experienced team of people with over 30 years’ experience in the development of new franchise systems, and the sale of existing franchised businesses.
Whilst franchising is not for everybody, buying an existing franchise can often eliminate much of the hard work for an individual wanting to get into business for themselves, and through franchising, we can provide you with the tools to turn your existing successful business into something a lot bigger and more financially rewarding.
A successful franchise needs to recruit the right people to grow their network. In our opinion, the right person is someone that best embraces the culture and group mentality of the brand that they have decided to represent. A franchisee is part of the brand.
At Wollermann Franchise Developments, we are passionate about what we do, we love getting the best result possible for our clients, but also get excited about helping buyers establish themselves in a business, most of those for the first time.
Personally, I have devoted over 40 years of my life to business, and have always worked as long as it takes to get the job done. That doesn’t mean I work 24/7, I make the time to enjoy family and friends, I keep fit and devote as much time as I can to community service.
I invite you to give me, or any of our team a call for a no obligation chat.
Section 52 Form requirements
by Ian Wollermann
Franchisors and franchisees selling an existing business need to be aware that a revised Section 52 statement will be required to be produced from the 2 May 2018. The new rules apply to existing businesses being sold for $450,000 or less, except if they have a liquor licence. This is a change from the previous upper limit of $350,000.
If the Section 52 Statement is not given to a potential purchaser or is incomplete the purchaser may avoid the contract of sale and be entitled to a full refund of any moneys paid.
Section 52 statements are required to be signed by the vendor and their accountant. For further information contact Ian Wollermann at WFD on (03) 9999 5488
What makes a HAPPY network of franchisees
by Colin Crawford
Some franchisors have lost the plot and forgotten that their franchisees are their customer, not the end consumer.
Keeping a group of franchisees happy is pretty simple and just makes good business sense. Recognising that franchisees are the franchisor’s customer, a franchisor should focus on these three crucial components:
1. Providing services that assist the franchisee to run their business. This can be an IT system, ongoing training, preparing financial reports, through to product development and supervisor support – things that a franchisee cannot easily do themselves when their daily attention is running their own business.
2. Developing and implementing a marketing strategy for the group including brand development and local area marketing for individual franchisees. Marketing is always best implemented by the franchisor as the party with the broader group perspective and with the resources to devote to professional marketing.
3. Franchisees need to be able to ‘buy better’ than what they could negotiate themselves for goods and services required to operate their franchisee. For example, this includes the flour for a baker, coffee for a franchisee’s customers through to a mower for a lawn-mowing franchisee.
All this might sound simple and obvious, but they are at the core of why some well-established franchisee groups are going back to basics with the aim of looking after their franchisees.
These three components assist the franchisee to operate a profitable business. If a franchisor keeps these principles in mind when managing their network of franchisees, they will continue to have HAPPY franchisees on an ongoing basis. For further information contact Colin Crawford on 0425 838 800.
Territory pre-planning makes sound business practice for franchisors
by Roger Dickeson
It is not uncommon for franchisors to simply divide up a city or state into blocks or districts as the basis of territories for franchisees, with little or no regard for the demographic composition of each of these territories. This approach can be fraught with problems for both parties down the track.
In any business, franchised or independent, the business owner really needs to know who his customer is, where they live or work and how likely they are to access the business as a customer.
Without this basic understanding, the business is really flying blind in attempting to promote and attract customers.
From a franchising perspective, a franchisor should at the very least, undertake some demographic research of the area surrounding a proposed new franchise territory. This research should be undertaken in the context of what the business is selling, in order to know how many potential customers it can attract, where they will come from and what their likely preferences are.
For example, a pet-care business should be located in a territory comprising a high percentage of households that have pets, or a food service business should be situated in a territory with a population who will find the menu appealing.
For a franchisee, buying a franchise in a territory that is based on solid demographic and socio-economic data, will provide confidence that they will have a good foundation on which to build up their business.
Research-based territory planning also protects the franchisor in the event of a dispute with a franchisee where the franchisee asserts that they were sold a franchise that turns out to be “under-performing”. If the franchisor can show that the territory has been determined based on statistical research into the composition of its local population, is a reasonable distance from other franchisees of the same brand and with consideration given to the proximity of competition, then the franchisor will be less likely to fall foul of its obligations to appoint franchisees in territories that will support a franchised outlet.
Good territory pre-planning is just good franchising practice. It should become one of the elements that goes to support franchisees who, after all, are buying into a franchise based on the experience, credentials and knowledge of the franchisor, who has “been there, done that” for them.
Master Franchising – Does it have a place in my franchise expansion?
by Roger Dickeson
Should I use Master Franchising to expand my business interstate or overseas?
Firstly, let’s consider the role of a Master Franchisee. The master franchisee’s role is to actively recruit and then manage franchisees in their region. Typically, a region is a state or country geographically separate from the home turf of the franchisor.
Master franchisees provide a local presence where a franchisor would find it difficult to effectively recruit and support local-area franchisees.
For their role as “intermediaries” between the franchisor and local-area franchisees, the master franchisee is remunerated with a share of the franchisor’s revenue streams. That is, the initial franchise fees and the ongoing royalties.
So, the first question to ask is: Can my franchise fee structure support paying a master franchisee in exchange for them providing local area services? If the answer is Yes, then the next steps are to define exactly what a master franchisee is required to do (i.e. set some goals and targets), what resources you will need to provide to the master franchisee so that they can operate effectively and how you intend to share franchisee support activities. For example, what role will a master franchisee play in local-area marketing for franchisees and how is this to be delivered to franchisees by the master franchisee?
In effect, a master franchisee becomes the franchisor in their region and takes on all the roles and responsibilities of the franchisor. So, selecting the right master franchisee is critically important. The master franchisee must share the franchisor’s vision and commitment to the business and the brand and demonstrate a capability to grow the franchisor’s business in their regional territory in complete harmony with the objectives of the franchisor.
There’s much to consider before simply assuming that the best way to develop and support a region remote from head office is to delegate to a master franchisee.
Master franchising can and does work where the careful preliminary considerations are well thought out and where the 3-way association of franchisor, master franchisee and franchisee is made a “win-win” for all parties.
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