It is becoming increasingly common to see franchisors using a joint venture model for their franchises. Specsavers is a well known example. A joint venture (JV) structure can have distinct benefits for the franchisor but it also comes with its own challenges.
Even when the documentation entered into between parties appears clear and able to be interpreted precisely, when the parties end up in a dispute, it is always quite fascinating to see how the actions or words of one or the other of them can be interpreted differently depending on which side of the dispute you are sitting.
Several well known franchise systems have recently made headlines in Australia in relation to Franchisees who have committed breaches of employment laws by underpaying staff and wage fraud. This has resulted in the Turnbull government introducing the Fair Work Amendment (Protecting Vulnerable Workers) Bill 2017 ("Aussie Bill"). This Bill provides that Franchisors will be held liable for workplace violations by their Franchisees if they have significant influence or control over the Franchisee; if they knew or should have known of the underpayments; and if they failed to take reasonable steps to prevent the violations. For many commentators, while there is a recognition that some things need to change, this is seen as a step too far and some have even gone as far as to say that this would be the end of franchising in Australia as they know it.
On 1 March 2016, the Food Act 2014 ("Act") came into force. This put in place a new food safety and registration regime for businesses which are involved in food. Gone is the one size fits all approach to food safety; the higher risk the business presents in relation to food the more obligations it will have and all businesses which have an involvement in food now have obligations under the new Act.
Selling franchises is not easy. First you have to find the right franchisee, and when you do you need to make sure that all the right legal boxes are ticked to help ensure that there are no issues in the future. Here are some tips to help you:
Ensure that they know exactly when payments are required to be made. If you are a member of the Franchise Association of New Zealand Inc. and you require the franchisee to make a payment prior to the Franchise Agreement being signed then you must make the franchisee aware of (in writing) the purpose of the payment, the terms and conditions governing refund or application of the money and who will be holding the payment.
Franchising is serious business in New Zealand. If you go to any mall in New Zealand you will find a number of the outlets are operated by franchise tenants. In fact there are probably more than you think.
To some extent, leasing to a franchise tenant is no different to leasing to any other commercial tenant. However, there are issues which a landlord should be aware of and take into consideration when leasing premises to franchisee.
Who is the tenant?
Often franchisors negotiate the terms of the lease but the tenant will be the franchisee. Other times franchisors will negotiate and enter into the lease either themselves or via a special purpose company specially set up to hold the lease and then they will sublease or licence the premises to the franchisee.
0508 Brookfields