Commercial Leases and Franchising
Commercial Leases and Franchising
- 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
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.
Generally what is a franchise?
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.
- 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