Do you lease premises for your business? Many business owners do not realize that when they sell their business and assign their lease, they may remain liable to the landlord for many years after the assignment. If the buyer (the new business owner) can’t pay the rent then the landlord may come looking for the previous tenant to cover the loss. Is that you?
Many leases actually provide that an assignment of the lease does not release the previous tenant from liability to the landlord.
Don’t despair! Read to the end of this article where we make reference to some legislation that may assist if you are a retail shop tenant. Read more
An advertisement was placed in the Sunshine Coast Daily on 19 January 2012 seeking nominations to join the Light Rail Taskforce.
This can be done by visiting the Consultation Hub.
The Consultation Hub http://sunshinecoastlightrail2020.com.au/ is available to you, if you would like find out what’s happening with the project; if you would like to join an online discussion forum or if your would like to
share your light rail experiences on that site.
This initiative is clearly designed to ensure that momentum is maintained and to measure interest. The arguments for light rail are compelling.
To register online. Go to http://sunshinecoastlightrail2020.com.au/taskforce and follow the prompts
If you would like to have a nomination form posted to you, please call the Project Office on 5441 8004.
Why light rail?
The Sunshine Coast is one of the fastest growing regions in Australia and based on existing growth there will be half a million people living here in less than 20 years. The challenge for council, business and the community is to balance growth and opportunity with sustainable lifestyle values and choices.
Maroochydore to Caloundra will be focus of economic growth over the next two decades with the development of areas such as Palmview, Caloundra South and Maroochydore.
Development will have unsustainable impacts on our transport system and therefore on our economy if they are not supported by high quality, fast and frequent public transport from the start, that people will choose to ride on.
Light rail will be transformational for the sunshine coast. It is a sleek, modern mass transit service that is able to move people efficiently without the need to always rely on cars. If we can reduce the dependence of the Sunshine Coast on oil-based transport we can create more high quality lifestyle choices in the region that includes attractive options to the private car for some trips and a more sustainable community.
One of the problems with our modern legal and business system is that it is exploited by those who know how to exploit it. Yet, for others who genuinely need the protection, that these systems were designed to provide, the red tap and excessive cost, makes help impossible to obtain.
We see this commonly in disputes relating to unpaid debts and money owed due to breach of contract. A person who owes money, may well know that it is often not worthwhile for a creditor to pursue payment. This is because the legal cost of chasing payment is too great. A debtor who believes that a creditor will not chase payment is unfortunately less likely to pay.
I have included some links at the end of this article that may assist anyone who is owed money.
Fortunately since December 2009 QCAT (Queensland Civil and Administrative Tribunal) has Read more
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Private companies that have less than 50 non-employee shareholders can raise funds from the general public if that fund raising does not require a disclosure document to be prepared.
You should of course obtain legal advice in relation to the requirements associated with fund raising, as these requirements change from time to time however, we can give you some general information here. If you wish to raise funds you may find this short article useful. We would enjoy the opportunity to assist you.
Keep in mind that even if a disclosure document is not required there are significant risks that need to be managed in terms of, Read more
If you are charged an extravagant fee, as a result of breaching a contract, then you should refuse to make payment without getting legal advice.
When a party to a contract breaks that contract there are consequences. If the injured party has suffered damages then that injured party can recover those damages from the defaulting party but, penalties cannot be recovered.
If for instance you agree that you will pay your phone bill within a certain time, after receiving an invoice but, you fail to make that payment on the due date, then you have broken that contract. You are in default. But what damage has the phone company suffered as a result of your late payment. Well, that depends upon the circumstances. Perhaps there is no real damage suffered at all. If so, why should you have to pay a fee which amounts to a penalty?
The Australian Consumers Association has raised awareness of fees that are imposed by banks and has made public statements about the illegality of certain fees.
There is potential for courts to rule, that fees such as:
are unlawful penalties that cannot be collected or enforced.
A penalty arises when a contract stipulates that upon breach of the contract the defaulting party must pay a sum of money that is out of balance, in an extravagant or unconscionable way, with the actual loss or damage caused by that breach.
If a party to a contract tries to enforce such a penalty against the party in default a court will refuse to enforce the penalty and a true calculation of the damage caused by the default must be made.
Many organizations are aware that the fees that they charge are not enforceable but are nevertheless prepared to continue to charge these fees on the basis that they will deal with any complaints on a case by case basis. If actively managed this seems to be a strategy that works for the organization.
The recent class action against ANZ bank however highlights the risk that if an institution relies on, what may be, unenforceable penalties as an important revenue stream, there are risks. It may be wiser to seek to earn that revenue up front in fees for service.
The government has introduced new legislation called the Personal Property Securities Act (“PPSA”) which is likely to come into effect on 30 January 2012. It will dramatically alter the way we deal with personal property and the way in which security over personal property can be protected.
“Personal property” is any property except land, fixtures to land and some statutory licences. For example machinery and equipment, inventory, motor vehicles, shares, book debts, receivables, stock, crops, trademarks and patents are all forms of personal property. Your family home will not be personal property under the PPSA.
The PPSA will regulate any “security interest” in personal property. The scope of what can constitute a security interest under the PPSA is wide and will include a number of interests which the current law does not recognise as security interests. If you do not protect your existing or future rights in personal property you risk losing your security interest in that property. By way of example, you could lose:
The PPSA will affect most businesses and individuals. This letter sets out some areas affected by PPSA. If you have transactions in any of these areas or interests in personal property, you should urgently seek advice about what steps you should take to protect your interests, if any.
If you can answer yes to any of the questions below, you should contact us to discuss how the PPSA may affect you.
Do you own personal property that could be in someone else’s possession for longer than 90 days?
Do you consign goods to other people to sell?
Do you manufacture and sell goods?
Do your conditions of sale state that you retain ownership until you are paid (i.e. retention of title clause)?
Do you lease goods or chattels, whether on their own or as part of a lease of land?
Do you have security over a motor vehicle, boat or aircraft?
Do you have security over property which has serial number identification?
Are you involved in transactions under which debts are assigned to you?
Are your security agreements in writing?
Are your security agreements registered on existing registers?
Do you lend money or extend credit for the purchase of inventory or particular items of personal property?
Do you take security over intellectual property e.g. design, patent, plant breeder’s right, trademark?
Have you granted “fixed and floating” charges or have they been granted to you?
Do you deal in livestock, crops or equipment that are not in your possession?
Do you buy or sell personal property either with real estate or on its own?
Do you provide hire-purchase finance?
Do you include charging clauses in your standard documents to give you security for an obligation?
Do you take control of your customer’s bank accounts to secure obligations owed to you?
Does any existing agreement to which you are a party include provisions which create security over property to secure the obligations of a party under the agreement (i.e. joint venture agreements, shareholder’s or unitholder’s agreements, licensing agreements, franchise agreements etc)?
If your answer to any of the above is yes, it is likely that the PPSA will affect you. The list of examples is not exhaustive and any person or business that deals in personal property should carefully consider the impact the PPSA may have.
A new register, called the Personal Property Securities Register (“PPSR”) will likely commence on 30 January 2012. Existing registered security interests are in the process of being “migrated” from the existing Federal, State and Territory registers (e.g. ASIC charges, REVS, Bills of Sale) to the PPSR.
Security interests that are not currently registrable (e.g. chattel leases, bailments, retention of title, commercial consignments, and vendor finance arrangements) have some protection for a period of two years after the commencement date. You should register these security interests on the PPSR within that two year period if your interest in the personal property is to last longer than two years. However, in some cases, there are additional steps that a secured party should take during this transitional period to protect its interest. This will depend on the nature of the interest. Whilst there are exceptions, it is essential in most instances to register your security interests in order to obtain priority. By registering your security interest you can prevent another person taking ownership of your goods, particularly if they become insolvent (with some limited exceptions). Any delay in registering your security interest or inaccuracy in the registration could be disastrous. New security interests created after commencement must be registered quickly (there are strict time limits for some securities) and in some cases may be registered before the transaction is completed.
We are keen to provide any advice you may need in order to protect your security interests. Unless you tell us about your security interests we cannot provide the advice. We will not examine documents in safe custody or our current or closed files to identify possible security interests unless you specifically instruct us to do so.
Failure to protect security interests could be expensive. Because of the significant changes to the law, we urge you to think seriously about the matters raised in this letter.
Section 51 AE of the Competition and Consumer Act (previously the Trade Practices Act) provides for industry codes such as the Franchising Code.
A breach of the Code constitutes a breach of the Competition and Consumer Act.
Section 51 AD of the Competition and Consumer Act provides that “a corporation must not, in trade or commerce, contravene an applicable industry code”
In a case known as Ketchell’s case the court was asked to look at the consequences of a failure to breach the code.
The facts of the case put simply are that the franchisor brought an action to recover money that the franchisee said was owning under the franchise agreement. Mrs Ketchell was the franchisee. Mrs Ketchell argued that the franchisor had not complied with the code. The code requires that the franchisor obtain a certificate confirming that the franchisee had read and had an opportunity to understand the disclosure document provided by the franchisor.
Mrs Ketchell did not provide the certificate. Mrs Ketchell said that the failure to obtain the certificate signed by her was not only a breach of the code but it also had the effect that the franchisor was not entitled to receive any payments under the franchise agreement. The Supreme Court of NSW agreed with Mrs Ketchell.
This case however had unexpected consequences. In a separate case brought by Hoy Mobile Pty Ltd against Allphones in the Federal Court the Franchisor argued that it had not complied with the disclosure provisions of the code and that as a result the franchise agreement was void. The result the franchisor said, was that the franchisee could not make claims under that franchise agreement for money that the franchisee was owed.
The Federal court said that the NSW Supreme Court was incorrect in Ketchells case. The federal court held that non-complaince with the code could not have been intended to have the draconian consequence of invalidating a franchise agreement.
The High Court looked at Ketchells case and handed down its decision on 27 August 2008 it was a unanimous decision. A breach of the code will not necessarily void the Franchise Agreement.
What then can a franchisee do in the event of a breach of the code. The code does not explicitly stipulate penalties.
1. seek an injunction,
2. seek damages,
3. seek non-punative orders,
4. seek other orders including perhaps variations to contracts.
Lots of people have great ideas but, do not have the time, the focus or the money, to implement or advance those ideas. In these times, which many business people see as, uncertain times, people are not prepared to take a risk, even if the potential reward is handsome.
There are however ways of reducing the cost and risk associated with the development of an idea, project or business, while at the same time obtaining access to a bank of ideas, knowledge and resources, at no upfront cost. Yes, less cost and a better chance of success! It is possible!
People make the world go round. The inclusion of other people in your great idea or project will add a new set of challenges but, it may be worthwhile. What if someone steals my idea? I would say, also consider this – what if you hide your idea, so safely and so well, that it never sees the light of day? Life is short. Take a risk, get the idea or business plan out there and see what happens!
The way to protect your idea is to properly document what you are doing and the rights and obligations of each of the parties at every stage and from very early on.
It also helps to get the right people involved. Some people will not be compatible with you. That will not work!
How do you tell if you have the right people involved? That’s not easy but, here is a strategy that will help. Get your potential partners in a room together and talk to them about all of the hard issues that are likely to pop up over the course of the project. Talk about how you see things going, your requirements and ask for a written agreement. Then watch, listen and see what happens.
This process is not only about getting an agreement together, it is about getting to know the people you will potentially be dealing with and getting an insight into how they will behave, in tough situations. Don’t be afraid to tackle the hard issues, including personal issues, very early on. Be tough, but reasonable, require everything in writing and be prepared to listen with an open mind. If it all falls apart, that is what was meant to happen.
Expect a debate, you may not want to work with a “yes” person, they will add nothing to the venture. However, my view is don’t trust anyone who takes offense at that process, they are either naive in business, afraid of commitment, or don’t agree with your position. Whichever is true, it is a negative sign and perhaps it is better that you end it there. Of course if someone does not agree with your position, it is true that you may not be the innocent party, so, of course always be prepared to take a look at yourself.
Now remember …..never take investment advice from a lawyer! We are not qualified to give that kind of advice but, I can make some observations and you can check with your business advisors.
The road ahead is cloudy. It is hard to see what is coming. What will interest rates do? How safe are jobs? There are lots of reasons to sit about and do nothing. However, I think it is also fair to say, that although no-one can pick a bottom, we have seen the top of the investment market come and go. Well, if you believe there are opportunities about and now is the time to move, then split the risk but, you may face another problem…. funding. One of the reasons that some assets are worth less today than they were yesterday is that many investors and business people cannot find the funding. Generally, there is less money around and market forces on the demand side, are at play. This is the time that syndicates can flourish.
The Australian Consumer Law has replaced various State and Territory laws from 1 January 2011. This means that business and consumers throughout Australia are now governed by the same consumer laws.
The ACL is found in Schedule 2 of the Competition and Consumer Act 2010 (Cth)
The Trade Practices Act 1974 (Cth) has been repealed and many of its provisions now appear in the Competition and Consumer Act.
Some parts of the Competition and Consumer Act mirror the wording of the Trade Practices Act, however there have been significant changes to the provisions of the Trade Practices Act. The numbering of the Act has changed therefore Businesses that use documents that refer to the Trade Practices Act and its various provisions should amend those documents so that they now refer to the correct provision of the Competition and Consumer Act.
If you wish to update the documents and agreements that you use in business you may wish by way of example to consider these changes:
| Trade Practices Act 1974 | Subject/Section Title | Competition and Consumer Act |
| 51A | Misleading representations with respect to future matters | Schedule 2, Section 4 |
| 52 | Misleading or deceptive conduct | Schedule 2, Section 18 |
| 51AA | Unconscionable conduct within the meaning of the unwritten law | Schedule 2, Section 20 |
| 51AB | Unconscionable conduct | Schedule 2 , Section 21 |
| 51AC | Unconscionable conduct in business transactions | Schedule 2, Section 22 |
One of the most significant changes introduced by the Australian Consumer Law is the introduction of unfair contract terms law, which commenced on 1 July 2010 and which relates only to standard form contracts. Contracts formed between 1 July 2010 and 1 January 2011 will be governed by the unfair contracts law within the Trade Practices Act. On and from 1 January2011 the ACL will govern unfair contract terms.
Some other matters covered by the ACL relate to a new national law guaranteeing consumer rights when buying goods and services, which replaces existing laws on conditions and warranties.
The intended benefit is that Consumers and Business now have one law applying to consumer transactions using uniform language throughout the States and Territories. This is an improvement, which long term is likely to result in reduced compliance for business.
The ACCC and politicians say that new terminology will make the law easier to understand. Lawyers may agree that the existing terminology has been tested and its meaning is understood by courts. Any change will at least initially add uncertainty.
Some of the terminology used in the Australian Consumer Law while appearing to be plain on the surface, may in a court setting, take some time to attribute consistent useful definitions.
What kinds of fees should a franchisee expect to pay? We have listed below some of the most common fees. It is not always true that you get what you pay for! In the case of franchising the best question may be to ask what you are getting (in the franchise agreement) rather than focus too heavily on what you are paying. But don’t be fooled! The answer to this pertinent question can only be found in the franchise agreement. A franchisor who offers the world but, cannot back this up with written promises, in the franchise agreement is worth very little and should be paid accordingly.
1. What fees are payable? Consider royalties, promotion and advertising funds, initial fees, renewal and sale fees, legal fees, start -up costs – required equipment etc
2. How are fees calculated – are fees fixed or percentage?
3. When are fees Payable? Are you required to make payments before you sign and if so how is any refund given in the event that you do not proceed?
4. How are fees paid? Eg direct debit
5. What are fees paid for? Is the franchisor required to provide any identifiable level and quality of service in return for the payment?
6. How are fees reviewed and are there likely to be substantial increases?
7. What other start up costs will you incur? Uniforms, equipment, fit out, occupancy costs.
8. Are you required to expend money on advertising in addition to any advertising levy.
Many franchisors impose a sale fee which in some cases can be tens of thousands of dollars. It is important to know at the point of entering the franchise what it will cost to escape the arrangement when, in the future, that becomes necessary.
If you are required to contribute to a marketing or other cooperative fund, the franchisor must prepare a financial statement of the fund=s receipts and expenses and the amount spent on administration, production, advertising. Unless 75% of the franchisees agree otherwise, this statement must be audited within three months of the end of the financial year. The franchisor must give you a copy of the statement within 30 days of your request.
If you require help checking your Franchise Agreement before you purchase or if you have a concern contact us.
If you are a commercial tenant you probably already know that retail shop tenants have a higher level of protection than do other commercial tenants. A retail shop landlord is restrained from doing certain things.
You may be a retail shop tenant even if you do not operate a retail shop. It is essential that you are able to determine if you are entitled to the benefits of the act. A link to the Retail Shop Leases Act is set out here.
Landlords are not permitted to pass on the cost of preparing a lease to their retail shop tenant.
There are rules about the maximum proportion of outgoings that a landlord can ask a retail shop tenant to pay.
The landlord is restricted in the way that increases in rental can be imposed.
There are other benefits also. Read more
Could anyone disagree that most property values on the Sunshine Coast Queensland have been in decline for at least the last 2 years? By my reckoning many properties are significantly less expensive than they were in 2007 which was the height of the property boom on the Sunshine Coast. So don’t get slugged for land tax that you don’t owe!
It is important to know if your lease is classified as a retail shop lease as there are advantages for this kind of tenant. In order to determine if your lease is a retail shop lease see please follow this link. RSL
An owner builder should provide you with a notice in relation to the work carried out on the property under an owner builder permit if the sale is within six years of the completion date of the owner builder work. An owner builder should provide you with a notice in relation to the work carried out on the property under an owner builder permit if the sale is within six years of the completion date of the owner builder work.
When should the notice be given and what should it contain? The notice should be given PRIOR to the contract of sale being signed. The notice should contain:
Details of the domestic building work performed
The name of the person (permit holder) who performed the work
A statement confirming the work was performed under an owner builder permit
Provide the following notice – “Warning – The building work to which this notice relates is NOT covered by insurance under the Queensland Building Services Authority Act 1991″. Read more
The following information has been provided by the Australian Competition & Consumer Commission (ACCC) in response to questions submitted by the Franchise Advisory Centre. The information was provided for general guidance only. The outcome of any matter investigated by the ACCC will be determined on the circumstances of the particular case, and will be guided by the ACCC’s Compliance and enforcement policy (attached). We note that provisions of the Trade Practices Act other than s.51AD may also apply when assessing a franchise matter.
1. How will changes to a system’s operations manual be affected by the new provision in relation to disclosure of unilateral contract variations?
Under new item 17A of Annexure 1 (item 9A of Annexure 2), a franchisor will be required to disclose the circumstances in which it has unilaterally varied a franchise agreement in the past (during the relevant period specified in the Code), as well as the circumstances in which it may unilaterally vary the franchise agreement in the future.
If a franchise agreement requires the franchisee to comply with an operations manual, and provides that the franchisor may vary the operations manual unilaterally, then this would need to be disclosed as a possible future variation.
2. The Business Minister announced in March that a plain English guide would be provided in consultation with the franchise community for distribution with franchisor disclosure documentation. What’s happening with this guide? Read more
The Federal Court has penalised Allphones Retail Pty Ltd $45,000 for contempt of orders following action by the Australian Competition and Consumer Commission.
Justice Nicholas found that the conduct was both ‘serious’ and ‘deliberate’, having been undertaken by a number of Allphones’ senior personnel.
The orders which Allphones has been found to have breached concerned two undertakings given by Allphones to the court in October 2008.
They prohibited the company from withholding consent to the assignment of an Allphones franchise if the franchisee would not sign a deed releasing Allphones from liability and required Allphones to give the ACCC 7 days’ written notice of its intention to withhold consent to the assignment of an Allphones franchise on the basis that the new franchisee must enter into a new franchise agreement.
“This decision sends a clear message that the ACCC and the Court regard breaches of court orders very seriously,” ACCC Chairman Graeme Samuel said today.
“Those who act in contempt of court can expect to be vigorously pursued by the ACCC,” Mr Samuel said. Allphones acknowledged that its conduct was both wrongful and culpable, and apologised to the Court and franchisees.
Allphones made joint recommendations with the ACCC to the court as to the appropriate fine.
I attended a seminar held by the Franchise Council yesterday. The speakers were Ralph Edwards and Phillip Chapman of Lease 1. A link to their website is http://www.lease1.com.au/contact.html
There were a number of good points made which have caused me to consider the process of negotiating a lease. We suggest that you always obtain legal advice before proceeding to any negotiation. Here are some suggestions:
1. Pressure on a tenant builds as the date for renewal approaches. Tenants are well advised to Read more
Raine & Horne Pty Ltd –v- Adacol Pty Ltd [2006] NSWSC 36
What is the effect of a restraint of trade after termination of a Franchise Agreement?
Adacol was a Raine & Horne franchisee at Brighton and Ramsgate in Sydney.
The franchise agreement provided:
“29.1 – The franchisee and the (guarantors) agree they will not for a period of 12 months after termination (for whatever reason) of this deed, conduct or be in any way employed or interested in any real estate agency business which carries on business substantially within a 5km radius of the premises.”
The franchisor terminated the Franchise Agreement on the basis that Adacol “voluntarily abandoned the franchise business or the franchise relationship” prior to the end of the term.
Adacol continued to operate from the same premises but instead as a Ray White franchisee. It was a condition of the Ray White franchise agreement that franchise fees be waived until the end of the Raine & Horne term.
Was the restraint of trade is void for public interest? Was Raine & Horne was able to show the restraint is no wider than is reasonably necessary to protect its legitimate interests?
The court found that there were some differences between restraints imposed on employees and restraints imposed on Franchisees.
It is interesting to note that Adacol could have avoided the operation of the restraint if it conducted a real estate agency business outside of the 5km radius of the restraint. This was so, even if it sold or managed properties within the 5km radius, or serviced customers who had previously been customers of the business.
The court found that a franchisor has the following interests to be protected by a restraint of trade:
1. Its direct interest in receiving franchise fees under the franchise agreement. In this case, Adacol proposed to continue to pay the franchise fees until the end of the term.
2. An interest in the franchise itself over and above the revenue it derives from it. e.g. at the end of the franchise, Raine & Horne may enter into a new franchise agreement with a third party, without competition from the former franchisee. This is different from starting up a new franchise business and facing competition from the existing franchisee trading from the original premises. Support for this interest was found in the assignment provisions of the franchise agreement, which provide for the franchisee to be restrained from competing with the purchaser.
3. Raine & Horne has significant goodwill in an existing business built up over many years, notwithstanding that goodwill had been contributed to by Adacol.
The court found that the restraint was enforceable!
On 1 January 2011 the Australian Consumer Law (ACL) commenced.
The ACL includes:
Assume firstly that the hypothetical Franchise System is a properly run Franchise System. Of course this is not always the case. In this hypothetical system, what then are the primary risks to success?
It should be expected that the reasons for failure in small business are in many cases the same as the reasons for failure of a Franchisee within a franchise system.
The failure rate for franchised businesses is perhaps less than for private small business as a whole because while some applicants would not be accepted by any competent franchisor, there is no restriction on any punter starting a business. It must be accepted that some people are not suited to owning a business.
What however are the most common reasons for failure within a franchise system. I recently followed a panel of advisors who considered these to be the primary causes of failure:
1. Under- capitalization. If there is not enough money available to make it through the tough times then success will be dependant on luck. A good accountant can provide information about how much working capital is required. Under-capitalization will also cause other failures related to funding which are disguised as something else. For instance, inability to employ the right people and failure to obtain the right advice, are often related to under funding.
2. Not enough motivation. If for any reason the franchisee loses motivation to succeed in the franchise then it is unlikely that the franchised business will be successful. A genuine burning desire to succeed will overcome many problems. Some franchisees hold a belief that it is not necessary to work as hard in a franchise system. This is incorrect. Success in franchising requires hard work, particularly in the early days.
3. Lack of ability. If the franchisee does not have the necessary skills they should not be selected by the franchisor. Nevertheless, even in a good system, a franchisor will from time to time select the wrong candidate. This can happen for many reasons and is a cause of failure.
4. Failure to make genuine energetic effort to follow the system -”I know better than your system” or “I can’t do those things”. Franchising is about following someone elses system. Once a franchisee is not able to do this, then energy is focused on the wrong thing and the franchising system will work against the franchisee, not for them.
5. Failure to work on the business and in particular work on effective marketing. Read the E-myth. A franchisee should not try to do everything themselves.
A dilemma which often faces commercial and retail shop tenants in Queensland is whether or not they should register their Lease with the titles office.
It is common in practice for the Tenant to bear the costs of and incidental to the registration of the Lease. This can include the costs of having a Premises surveyed and plans prepared, lodgement fees and requisitions. This can all be a very costly process.
The question that often confronts a Tenant is: do the risks associated with not registering the Lease justify the initial costs of registration?
So what are the risks? Read more
If you are buying into a franchised system, it will be important to ensure two things:
1. that the Franchisor is performing well
2 that the Franchisee’s existing business (if any) is performing well, within the franchise system.
Franchisor Performance
These investigations are part of your due diligence. There is more to due diligence than having your lawyer check the contracts and your accountant check the figures. Obviously these things need to be done and it would be foolish to consider a purchase without these checks however, you, also have a role to pay.
Every Franchisor is obliged to keep a current disclosure document. That disclosure document is a very useful source of information for you. It should, if properly written tell you if the Franchisor has been terminating franchises and if franchises have been failing or disputes have been brewing. It will tell you the experience level of the Franchisor and much more. If you do not understand the disclosure document then you should get assistance. If the disclosure document is not well written this should be a warning to you.
The disclosure document should also provide you with contact details for past and present franchisees. The purpose of this is to allow you the opportunity to make contact with franchisees so that you can make enquiries in relation to how well the system works and what the Franchisor and its representatives are like. Try to read between the lines. Franchisees do not like to openly criticize the Franchisor as they sometimes fear that this may impact on their business.
You should consider the age of the franchise system, the age of the underlying business and the number of Franchisees within the system and their history. A young franchise system may have additional risk as it will not have a track record and the experience of the Franchisor will then be of particular importance. This experience should be tested rather than accepted on face value. A new franchise system may be more flexible with the arrangements that they are prepared to offer, so perhaps you can twist an arm, to get an advantage but, beware of a Franchisor who is too flexible and is prepared to make a lot of changes. This may be a sign of inexperience at best and at worst, is desperation to make a sale.
Take note of the recruitment process and how professionally it functions. A Franchisor who is prepared to take on anyone who is prepared to hand over some cash may be putting the whole system at risk and your business along with it.
Get details in relation to how the training process will work. The training process will be used by the Franchisor to assess you.
Do not underestimate the importance of personalities. You will have to work with the franchisee and its representatives. Find out who will be your direct contact within the franchise system. A franchisee who likes the Franchisor and their representatives is far more likely to succeed. So it is important to make sure that you believe that you can relate to both individuals and the culture in the Franchisor organization.
Actively ask yourself “what is the Franchisor promising to do for me”. The Franchisors obligations should go beyond renting a name. In a well run system the benefits of the system to the franchisee should be obvious – the list is not exhaustive but may include: group advertising and websites, referral of work, a respected brand, training, buying power, centralized phone number and a manual that sets out a unique systems that gives the brand its character.
In a well run system there should be annual events and opportunities for Franchisees to meet with the Franchisor and other Franchisees.
Franchisee Business Performance
Your accountant will obviously deal with issues related to business performance.
You should however also consider some additional matters. Where does the performance of the franchised business sit within the system. In any existing business the Franchisor should be able to provide this information. Does the business perform better or worse than the average franchise within the system? What can be done to improve performance? What risks are there to the continuing performance of the business? You might also ask your accountant to let you know what the benchmarks are within the industry as a whole. Does a franchisee with an average performance within the system outperform the industry average?
Ask these questions of your Franchisor and you will get a feeling for how well the Franchisor knows the industry and how well they understand their own franchise system.
The cost of preparing legal documentation to turn a business into a franchised system is between $8000 and $20,000 plus GST . This cost may be recovered by the sale of franchises. Once the template documents are prepared the franchisee should pay the franchisor’s costs to prepare and issue the documents, as well as the cost of negotiations. We set up franchise systems for clients throughout Australia. Please contact us for an instant quote. The task of preparing this documentation is a routine legal engagement for us however it is a lengthy process where each step in the process must be respected. We can usually provide draft franchise documentation within 2 weeks of receiving instructions.
The cost and time involved is determined by the complexity of the system, and the extent to which the client has resolved issues relating to the workings of the system. For example if the franchise system relates to a home or vehicle based system, then the cost is generally not much more than $8000 plus GST. When it is necessary to incorporate procedures relating to retail shop leasing then this would normally add another level of processes and cause cost increases.
Riba Business Lawyers aim to build an understanding of your concept and system at an early stage so that we can be of use to the franchisor throughout the life of the franchise system.
The standard documents that Riba Business Lawyers prepare are:
We also prepare the first letters, which introduce the franchisee to the documentation in the manner required by the code. We suggest that Riba Business Lawyers are employed to issue the first disclosure documents and Franchise Agreements so that we can ensure that the required certificates are obtained and that time frames are adhered to. It is of little use complying with time frames, if it is not possible to prove that the time frames have been respected. Dairies, telephone notes, and documentation must be kept meticulously.
The cost of the documentation can move toward the higher end of the range as the system becomes more complex. Complexity can be added for instance by:
The costs of preparing franchise documentation is usually reduced if the client is able to provide a well written operations manual which makes clear the way in which the franchise system is intended to operate. The operations manual will usually set out more detail about operations than will the Franchise Agreement itself.
Please contact Riba Business Lawyers for a no obligation free quote. If you are in the early stages of considering franchising your business please contact us and we can set you on the right path. You may be eligible for a free thirty minute consultation.
A tenant may have no legal right to complain, if a landlord is charging “unfair” rent which is well above the amount that a valuer might say is market rent. The lease determines the rent that is charged. In better times a deal may be struck between the landlord and the tenant. Over time circumstances and the economy may change. Rent is not however determined by the rental market at any particular time. Rental is determined only by the lease. But there may be other things which a tenant can do. Read more
If you are a business that rents premises then you should urgently have a lawyer check to see if your lease is secure.
In some areas of Queensland small commercial landlords might be under strain and business owners may as a result lose their business. Below we have set out the steps that you can take to make sure that your business is not affected. Unfortunately many leases in Queensland are not protected as Section 66 of the Land Title Act has been ignored or forgotten. If the landlord is put into insolvency or bankruptcy then the commercial tenants may be in serious trouble.
A bank wanting to sell business premises does not necessarily want to keep the business in place, Read more
The ACCC is watching!
If you are a Franchisor but you are not bothering to keep your Disclosure Document up to date then you could be in for a nasty surprise!
On 1 January 2011, the ACCC was given the power to monitor compliance with the Franchising Code.
The power enables the ACCC to obtain from a Franchisor any information or documents it is required to maintain under the Franchising Code. The recipient of an audit notice has 21 days to comply.
Examples of documents the ACCC may request include:
The ACCC have indicated that while they have the power to conduct the audit randomly they will concentrate their efforts on Franchisors who have been the subject of complaints.
We can help you put processes in place to ensure that your legal documentation is kept effectively and up to date.
Most transactions whether for the sale of property or a business include at least two or three important dates. These dates are:
1. The date that the contract is signed by the parties to that contract
2. The date that special conditions are satisfied
3. The date that the contract reaches settlement or completion. The completion date and the settlement date are different words, used to describe the same thing.
Which of these dates do authorities rely upon when determining the date of the sale? Read more
Many people wrongly believe that if an agreement is not put in writing they are not required to honour the agreement. This is incorrect (except for some exceptions, one of which is noted below). A verbal agreement may be enforced by either party to the agreement regardless of whether that agreement is in writing. So be careful what you agree! The difficulty you may have guessed is, proving what was agreed. Indeed we see many agreements, even written agreements that are very unclear. There is sometimes so little detail or, so little care taken, that it is difficult to know what the parties are intending. Read more
Bill Evans has been on the money lately when forecasting interest rates. We have set out below the summary of his most recent report.
He is tipping an interest rate drop of .25% in February 2012 but says it will not be a surprise if that interest rate cut is brought forward to December 2011.
Bill is commenting for Westpac on the minutes of the Reserve Bank -
This commentary in the Minutes clearly leaves the door open for further rate cuts. Westpac has been expecting a further 75bps in this cycle with the next move timed for February. Markets give a 100% probability of a cut by December 6. One of our key reasons for expecting a delay to the next move has been around the Bank’s concern to confirm the sharp slowdown in underlying inflation with another print. The minutes indicate that due to the weakness in the domestic economy and the evidence from their liaison, the Bank is convinced that inflation will remain low.
With financial conditions and policy settings not yet being described as neutral, inflation forecast to remain within the target and GDP growing at trend, the scope to further ease policy is clear. Given the huge emphasis which the Bank has placed on downside risks to the global economy when justifying the cut in November, December’s decision will also hinge on those global developments. We remain comfortable with our original view but can easily see circumstances
which would bring the decision to cut rates by 0.25% forward from February to December.
As the financial developments in Europe evolve over the next few weeks, this picture will become quite clear. The European situation is likely to be much more important than fiscal policy.
Bill Evans, Chief Economist
The Competition and Consumer Act makes “unfair” contract terms void. If a clause is void it cannot be enforced.
Business people should review their standard form contracts regularly to ensure that they are fair.
Consumers should be aware that they may not be bound by the terms of any contract that they have entered into if those terms are not fair.
In order for the act to make an unfair contract term void, the contract must be a consumer contract and the contract must be in standard form.
A consumer contract is a contract for the supply, to an individual of goods or services or land for reasons of personal, household or domestic use or consumption.
It is hard to be sure what a standard form contract is. It is likely however that any contract which is based on a document prepared in advance of any negotiations, that is little changed as a result of negotiations or the considerations of the particular circumstances are likely to be standard form contracts.
A contract that is prepared specifically for a particular transaction and which did not use some form of agreement that was prepared on some earlier occasion will not be a standard form contract.
It is easy to imagine that the “click to accept” contracts that are often seen when transacting on the internet will be judged to be standard form contracts.
What is the test of whether a contract term is “unfair”? A contract term is nothing more than a part of a contract.
The courts will ask the following kinds of questions to determine if a contract term is unfair:
Does the term cause an imbalance in the rights and obligations of the parties?
Is the term necessary in order to protect the party who has the advantage of that clause?
Would the term cause detriment to the party that it is used against?
It is also relevant whether the term is written in plain language and is available.
It is important to note, that an unfair clause or term does not make the entire contract unenforceable, it is only the unfair term that is unenforceable.
If you are borrowing in the name of a company your bank will always require the directors and sometimes others to personally guarantee the obligations of your company.
If the bank requires a guarantee from someone who is not a director or from someone that they suspect gets no benefit from the loan then they may insist that the guarantors get legal advice. This is done by insisting that a lawyer give a certificate confirming that the lawyer has provided legal advice.
Lawyers are not keen to give this advice for a number of reasons:
1. Lexon is the company that provides insurance to all Queensland lawyers. Lexon sees the issuing of these certificates as risky.
2. Many of the clauses in the bank guarantees are inherently unfair.
3. The terms of guarantees can be complex.
The issuing of a solicitors certificate adds a significant cost to the expensive process of obtaining a loan.
You should speak with your bank before documents are issued to see if this cost can be avoided. We are not suggesting that you should not obtain advice. It is important to understand your rights and obligations however there is a significant cost to obtaining this kind of advice and the issuing of a certificate to the bank does not, of itself, protect you.
All of this started with a case known as Armadio.
Commercial Bank of Australia v Amadio [1983] HCA 14: An elderly couple known as the Amadios, signed a guarantee for thier son’s bank, so that their son could obtain a loan. The Amadios believed that their son’s business was doing well, but it was not. When the son’s business failed, the bank sought to enforce the guarantee against the Amadios. A court decided that the guarantee was unconscionable and said that the bank could not rely upon the guarantee. It was held that the guarantee was “manifestly disadvantageous” to the Amadios. The court decided that the bank must have been aware of this but chose to take no steps to ensure that the Amadios were properly advised.
The result is that banks will now often require a solicitors certificate to ensure that steps have been taken to protect the guarantor. Often the requirement for a certificate can be waived if the matter is dealt with early. If however, arrangements are not made at an early stage the bank may seek solicitors certificates even when the only guarantors are directors of the company.
“That contract’s not worth the paper its written on”. I understand that this is how people may feel, when they have taken the time to make a contract, yet a dispute arises anyway. Nevertheless this statement is rarely true, where a contract is properly drafted.
The point of a contract is to provide the parties to the contract, with a starting point, in case there is a disagreement. It is not the case that a White Knight will ride in, to put things right, when the terms of the contract are broken. If the agreement is properly drafted there will be a good number of matters on which it is more difficult to have an argument. Yet there will remain scope for an argument and it is up to you to enforce your rights. You will see below there are things that you can do to make a dispute less likely. Read more
Chinese manufacturing shows signs of strain
The flash estimate of the November HSBC manufacturing PMI,
released Wednesday, was very weak.
This survey highlights that the industrial sector is in a concerted
slowdown phase that is more than a ‘soft patch’. The sharp fall of
the headline index was concentrated in output and new orders,
which declined by 4.7pts and 6.7pts respectively to deeply
contractionary levels. Both input and output prices collapsed, each
sub-index losing approximately 10pts. While this survey does not
quite evoke a unidirectional unravelling – if inventories had risen
sharply in addition to the decline in output and orders, it might
justify that description – it certainly opens up a lively debate on the
short term GDP profile for Australia’s major trading partner.
Most forecasters seem disinclined to push their quarterly numbers
below 8% even where they have quite a pessimistic narrative.
But to our minds there is little hope that year-ended GDP growth
will retain an 8-handle in the March quarter of 2012. The weak
state of manufacturing as described by the PMI also raises the
possibility that the 8% threshold may be under threat in the current
quarter. The bar is not that high in Q4 – anything better than a 7¾%
annualised pulse would produce 8.0%.
For Q1 though (depending on the starting point of course) the
required ‘standard’ to achieve an outcome as high as 8.0% jumps
into double digits. And that would be a remarkable turnaround given
the presumed weakness of external demand through this period; the
fact that the lagged policy states most relevant to this period were
unambiguously restrictive; and the fact that the housing market is
looking increasingly stressed, thereby putting the contribution to
growth from the real estate construction cycle at risk.
Selective policy easing is underway, as we have been expecting,
and the weak outcomes for the price sub-indices in the PMI are an
obvious signal that the inflation story is not going to be a restraint
on policy action going forward. Unfortunately though, such are the
lags between monetary policy changes and real activity, the earliest
that we can expect the observed easing policies to begin positively
influencing growth is late in the June quarter of 2012. The path
between today and the middle of next year will be a rocky one.
Huw McKay, Senior International Economist
Australia: lumpy project activity to boost Q3 GDP
The Construction Work Done survey, published Wednesday, revealed
a sharp rise in the value of work for the September quarter.
Construction activity leapt by 12.5% to $47.7bn, an increase of
$5.3bn on the June quarter. This outcome was well in excess of
expectations and will provide a significant boost to Q3 GDP.
However, this does not fundamentally alter our view of the Australian
economy. The sharp rise was entirely driven by a phenomenal spike
in private infrastructure work. Infrastructure work in the private
sector increased by $5.4bn, up 36.1%. We had expected an increase
of 5%. No surprise that strength was concentrated in the mining
state of Western Australia. Total infrastructure work in the state
increased by $4.1bn, a rise of 63%.
So what are we to make of this? The very sizeable pipeline of
project work outstanding, which is $109bn nationally and $66bn for
Western Australia, points to considerable upside for infrastructure
investment, a prospect we have in our forecasts. The speed with
which this work can be completed will, however, be limited by
capacity constraints. The Q3 rise in WA infrastructure work of
$4.1bn is an outlier. By way of comparison, the total increase
over the previous six quarters was less than $1bn and the largest
quarterly rise prior to this was $1.2bn, in June 2005. We suspect the
importation of a large one-off “bolt-on” structure contributed to this
Q3 spike. Accordingly, we anticipate a corrective pull-back in Q4.
It was also notable from the Construction Work Done survey, and as
we expected, that conditions were mixed outside of infrastructure.
Indeed, activity ex-infrastructure weakened a little, declining by
$0.1bn, -0.3%.
Private residential building activity was flat. Near-term, we expect
some weakening, given declines in dwelling approvals. The RBA’s
November interest rate cut and the prospect of further cuts will
provide some support. Public construction weakened in the quarter,
down -3.9%, as the Federal Government’s fiscal stimulus package
continued to wind down. Private non-residential building activity
experienced a bounce, up 7.8%, but remains at relatively low levels.
Approvals, while off their lows, are subdued and recent global jitters
are likely to delay any further gains.
Taking all these factors into account, we have upgraded our Q3 GDP
forecast to 1.3%, from 0.2%, but lowered our Q4 GDP forecast to
0.4% from 0.6%. Our forecasts for year average GDP growth are now:
1.7% for 2011 (up from 1.2%) and 3.0% for 2012 (up from 2.7%).
The ABS will publish the Q3 national accounts on Wednesday 7
December. The next quarterly partial indicator to be released is the
CAPEX survey, on Wednesday 30 November.
Andrew Hanlan, Senior Economist
Global risks increase as China slows
If you are a business owner and you offer credit to your customers, you take security for other reasons or even if you are considering giving vendor finance then you will need to make sure that you understand how this Act affects you.
The Personal Property Security Register commences on 30 January 2012
Please see our previous comments in relation to this register which replaces many different forms of security such as Company Charges, Bills of Sale and other non land based security.
If you want to know more then follow these links or contract us:
Please note our comments made in our earlier post on this topic.
Unless you have seen first hand, the way that legal proceedings can be built or destroyed, by a written note relating to a matter in issue, then you cannot appreciate how much lawyers and the court system love bits of paper. Written notes on bits of paper can literally determine the outcome of legal proceedings.
The absence of written notes can cause lawyers on both sides of an argument to work for days preparing affidavit material, each trying to recount, with limited success what was said. In many cases the factual debate is often won by the person with the best supporting paper.
Once an event, an agreement or a statement, moves into the past it is lost and can be misunderstood or corrupted at a future time. The recording of that information in writing, if the recording was made at the time of the event or, shortly after is very influential, as it is a tangible connection with, what happened.
So how can business people apply this to their advantage.
1. Keep records of all communications sent or received. Timing is often as important as content.
2. When taking on new business or when deals are made or amended follow up with a letter setting out what was discussed and agreed. This will bring any problems to the surface early on.
3. Make sure that you keep your database of emails and letters in a format that can be easily retrieved if that is necessary. Email is a great way of quickly confirming a situation and is an effective record in court. Make sure you get a read receipt.
4. Make sure file notes are made at the time meetings are held and then send out a minute after the meeting.
5. Reduce all agreements to writing, whether these be partnership agreements, supply agreements, or agreements with customers and clients.
If the other party and their lawyer know that you have good supporting records then this may be enough to avoid litigation or prompt an early settlement of any dispute.
Still liable under lease when business sold?
Consultation for Light Rail Project Progressing
Stand up for yourself without spending a fortune on Lawyers
How to raise funds for your project or business without going to a bank.
You do not have to pay penalties!
Letter to all Clients – Personal Property Securities Act (“PPSA”)
What happens if a Franchisor Breaches the Code?
Syndicates and Partnerships – used to fund and further, ideas!
What is the Australian Consumer Law?
Due Diligence – Franchising- Money Issues
Is your Queensland lease a Retail Shop Lease?
Land Tax Valuations – watch out! It’s expensive and don’t assume the valuation will be correct.
Some Things To Consider Before Buying A Business
Selling Your Business – What information do you need to complete the transaction successfully?
Protection for Retail Shop Tenants.
Sale of Owner Builder House in Queensland
ACCC information – Code and other Requirements explained.
Franchisor in Contempt of Court Orders
Lease Negotiations – Some Hints
Franchising Restraints of Trade
Consumer Protection
Top Five Reasons Why Franchisees fail in a well run Franchise System
Should a Commercial Lease be Registered?
How to tell if a Franchise System is well run?
What does it cost to Franchise your Business?
Unfair Rent in a Commercial Lease.
Don’t lose your business if the landlord goes Broke!
Franchising Code Audits By the ACCC
What is the legal Date of a Sale
Do Contracts Need to be in Writing?
Bill Evans Chief Economist at Westpac Comments on Interest Rates.
What can you do if a contract is unfair?
Why does your bank require a solicitor to explain the guarantee?
Why business people don’t want to go to court!
China is slowing says Westpac Senior International Economist
Are You Ready? New Security Register commences January 2012
How to Avoid Litigation or improve your chances.
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