Inside Franchise Business - - Contents - DAMIAN PAULL

The Fran­chise Coun­cil of Aus­tralia’s view on re­tail leas­ing.

The need to en­sure re­tail leas­ing is both balanced and fair is para­mount for fran­chis­ing and the sec­tor’s peak body is tak­ing steps to bring this about.

There are an es­ti­mated 79,000 fran­chise busi­ness units op­er­at­ing in Aus­tralia, rep­re­sent­ing a di­verse range of in­dus­tries, but whether a quick ser­vice res­tau­rant (QSR), travel agency, phar­macy, sports store or a myr­iad other busi­nesses, many of these fran­chised busi­nesses have bricks and mor­tar re­tail out­lets.

This makes the is­sues of site se­lec­tion and re­tail leas­ing im­por­tant for the fran­chisors and fran­chisees alike.

Good site se­lec­tion will con­trib­ute to the prof­itabil­ity of a fran­chisee's busi­ness, de­liv­er­ing strong foot traf­fic in ad­di­tion to cus­tomers who may be at­tracted to the busi­ness through mar­ket­ing and ad­ver­tis­ing cam­paigns. Con­versely, poor site se­lec­tion can re­duce the vi­a­bil­ity of a fran­chisee's busi­ness, with is­sues such as poor vis­i­bil­ity or poor ac­cess lim­it­ing sales po­ten­tial.

Tied to this is the re­tail lease. A prom­i­nent re­tail site in a good lo­ca­tion will likely com­mand a com­men­su­rate rental out­lay, and this is an ex­pense a fran­chisee must fac­tor into the cost of do­ing busi­ness.

So, in ad­di­tion to the fran­chise agree­ment, a fran­chisee will likely also sign a sep­a­rate re­tail lease agree­ment with a land­lord.

While the Fran­chis­ing Code of Con­duct reg­u­lates the re­la­tion­ship be­tween fran­chisor and fran­chisee, and in do­ing so pro­vides pro­tec­tions to fran­chisees to ad­dress any power im­bal­ance be­tween these par­ties, there have not his­tor­i­cally been equiv­a­lent pro­tec­tions en­acted in re­gard to land­lords and ten­ants that are par­ties to re­tail leases.

In­deed, where fran­chis­ing is reg­u­lated by a manda­tory Code that ap­plies na­tion­ally, re­tail leas­ing leg­is­la­tion dif­fers from state to state, and so too do the re­quire­ments im­posed on land­lords in their deal­ings with re­tail ten­ants.

As the peak body for the fran­chis­ing sec­tor, the Fran­chise Coun­cil of Aus­tralia (FCA), has been ac­tively en­gag­ing to en­sure fran­chised busi­nesses who are re­quired to en­ter into re­tail leas­ing agree­ments are do­ing so in a fair and equal mar­ket­place.

In re­cent times, the FCA has worked in con­junc­tion with our in­dus­try part­ners, the Aus­tralian Re­tail­ers As­so­ci­a­tion ( ARA) and the Phar­macy Guild, to en­gage with State Min­is­ters re­spon­si­ble for Small Busi­ness, and the State Small Busi­ness Com­mis­sions around the is­sue of re­tail leas­ing in re­gard to the re­view of Re­tail Leas­ing leg­is­la­tion in both South Aus­tralia and New South Wales. The FCA is also rep­re­sented in a re­view of Re­tail Leas­ing leg­is­la­tion that is cur­rently un­der­way in Vic­to­ria.

In ad­di­tion, a Re­tail Code of In­dus­try Prac­tice – The Re­port­ing of Sales and Occupancy Costs (the Code) has been de­vel­oped and signed by the ARA, Phar­macy Guild and the FCA in re­sponse to the Re­tail Leas­ing Act amend­ments in NSW. At the time of this pub­li­ca­tion, the Code not been signed by the Shop­ping Cen­tre Coun­cil of Aus­tralia on be­half of its mem­bers.

This Code aims to pro­vide re­tail­ers with greater trans­parency when ne­go­ti­at­ing lease deals, and to put them on a level play­ing field with land­lords, by ad­dress­ing some of the in­for­ma­tion asym­me­try and en­sur­ing ten­ants can make more in­formed de­ci­sions

This is of par­tic­u­lar im­por­tance in the con­text of fran­chis­ing, where there is a marked in­equal­ity of bar­gain­ing power be­tween land­lords in ma­jor shop­ping cen­tres and fran­chis­ing ten­ants, the vast ma­jor­ity of whom are in­di­vid­ual small busi­nesses.

These ten­sions have re­cently boiled over as QSR fran­chise SUMOSALAD has sought to force a shop­ping cen­tre land­lord to the ne­go­ti­at­ing ta­ble and pro­tect the fi­nan­cial in­ter­ests of some of its fran­chisees by putting two of its companies, which hold leases of a num­ber SUMOSALAD fran­chise units in shop­ping cen­tres, into ad­min­is­tra­tion.

While this case study high­lights the po­ten­tial for a fran­chisor to step in on be­half of fran­chisees in a de­fined set of cir­cum­stances, it also un­der­lines the im­por­tance of re­dress­ing the in­trin­sic power im­bal­ance be­tween shop­ping cen­tre land­lords and fran­chisee ten­ants.

The FCA will con­tinue work­ing with the ARA and the Phar­macy Guild to e nsure the im­ple­men­ta­tion of the Re­port­ing of Sales and Occupancy Costs code, the re­view of the Ca­sual Mall Li­cens­ing Code and to re­form state-based re­tail leas­ing leg­is­la­tion to re­duce red tape and make re­tail leas­ing eas­ier and fairer for the fran­chis­ing sec­tor.

CEO, Fran­chise Coun­cil of Aus­tralia

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