Commercial Law

Commercial Leases and Franchising

Commercial Leases

Commercial leases are required for the vast majority of business owners for commercial/industrial business premises (not residential). A lease gives the tenant rights to the use and occupation of the premises for a period of time in return for rent and meeting other conditions and obligations. Absolute Legal Services has acted for numerous landlords and tenants for many years in achieving successful leasing outcomes.

Franchise Agreements

At Absolute Legal Services we have acted for both franchisors with commencement of a new franchise and for numerous franchisees from the small to the large.

  • The Base Rent – does it include or exclude outgoings and GST
  • Increases in Rent and/or Rent review periods.
  • Outgoings – payment of all or a proportion of the landlord’s building insurance, rates, land tax and other charges
  • The term of the lease
  • Option periods
  • How you can use the premises
  • Trading hours
  • Insurance requirements
  • Repairs and maintenance
  • Breach of lease terms
  • Termination of lease terms
  • Alterations to premises
  • Security Bond
  • Payment of the landlords costs for preparation of the lease
Yes, otherwise it could by implied by law that the tenancy is a “tenancy at will” which can be terminated at any time. If the term of the lease is for more than 3 years including option periods then it must be in writing and registered. (NSW) Also if the premises are in a retail shopping centre or your use of the business is one which is defined under the Retail Tenancy Act then it must be in writing and other special provisions apply.
Generally not, unless the lease document contains express provision for you to terminate at any time. Most commercial leases will bind you to pay the rent and meet all the contractual lease obligations until the end of the term. You should carefully consider whether you would be able to meet the rent payments and other lease obligations if there is a substantial downturn in business or through ill health or the like. Whilst a lengthy lease can be attractive should you want to sell the business in the future, for new business owners they often should seek smaller initial terms if possible.
In most cases no, however some leases for terms of less than 5 years will require a solicitor’s certificate. However, it is highly recommended that you obtain legal advice prior to entering into a formal commercial lease arrangement so that you clearly understand your lease obligations and/or your solicitor can seek improved terms.
A franchise system is a business system in which a franchisor grants a franchise such as the right to carry on a business, supplying or distributing goods or services under a system or a marketing plan substantially determined or controlled by the franchisor and under which the operation of the business will be substantially associated with a trade mark or symbol owned by the franchisor and under which before starting the business the franchisee must pay or agree to pay an amount for initial capital investment, payment for goods or services, royalty payment, training free, payment for goods or services at or below wholesale price, repayment by the franchisee of a loan from the franchisor, payment for the wholesale price of goods take on consignment etc. Franchising, despite its failures in some systems, still remains a most successful way of entering into business. The Trade Practices Act prescribes a Franchise Code of Conduct. The main causes of franchise failure are: greed on the part of the franchisor, over-rapid expansion, lack of proper development of the product and/or system prior to entry into franchising.

Other franchise matters for consideration:

Type of Franchise Business:

The position of the franchise in the market is a vital concern. Look at how the franchise is performing in its industry and also assess the prospects for the overall industry. Whether a franchise can provide you with a sustainable profit

Points to Check

When considering a franchise:

  • Demand in the marketplace for the service or goods on offer
  • A complete description of the business
  • The track record of the franchisor and current motives for franchising
  • What the franchisor has to offer by way of name, product, reputation, site location, advertising budget and back-up
  • How other franchisees are faring in the same business
  • Evidence of the franchisor’s strategic plan, ie. where the business is going
  • The fees involved, ie up-front capital and percentage of taking s which you have to pay to the franchisor for the continuing right to operate the business
  • Terms of sale for goods supplied by the franchisor and if you can purchase stock from outside the franchise network
  • The franchise agreement document and the period of the franchise
  • Obligations on both parties when the franchise is terminated, the number of agreements terminated recently and the reasons
  • Territorial rights, ie exclusive or otherwise
  • Whether there is a franchise operations manual
  • When you have obtained this information, consider it in the light of your own strengths and weaknesses and your expectations
  • Do you have the type of experience required? Are your ready for the hours and commitment needed?
  • Will you be comfortable with the amount of control the franchisor will have?
  • Is your financial position strong enough to see you through the first year?
  • Do you have the ability to learn?
  • Are your suited to the industry and to the franchise company?
  • Are you physically capable of the work required?
  • Franchising can offer
  • Easier access to finance with the support of the franchisor
  • Direct benefit from the franchisor’s advertising and buying power
  • Use of an already established business name
  • Management and industry knowledge back-up
  • Reduction of business risk

The potential disadvantages of franchising are:-

  • Payment of fees and/or percentage of turnover and the future resentment of same
  • Loss of some independence through franchisor control of management techniques
  • Over-dependence on the franchisor who may make mistakes
  • Reputation of a franchise may be affected by factors beyond franchisee’s control

Business structures and entities – Company, Trusts, Partnerships, Joint Ventures

In conjunction with your financial advisor, Absolute Legal Services can assist you to choose the most appropriate structure for your business and assist in arrangement for incorporation of companies, setting up discretionary and unit trusts, simple and complex partnerships and joint ventures.

A franchise agreement is typically a lengthy document with numerous restrictive rights and obligations. You should seek legal advice before considering a franchise.
  • Inform you in detail about the rights and responsibilities with your commercial transactions
  • Draft appropriate documentation to meet your requirements
  • Assist you in the negotiation stage
  • Ensure contracts and other legal documents clearly meet your requirements
  • Provide you with full copies of all your legal documents
  • Provide written Costs Disclosures with either a fixed legal fee or an estimate of your legal fees and Costs Agreements
  • Advise you in relation to pitfalls and other aspects that you may not have considered