Many franchisees are asking “do I need to pay fees under my franchise agreement when I can’t operate my business”.
We consider some options below.
While many franchisees pay fees based on a percentage of turnover, some franchisees pay either a minimum fee or fixed fee (which they may have been asked to continue to pay despite the COVID-19 restrictions).
Force Majeure Clauses
Franchisors and franchisees should consider the operation of any force majeure clause contained in the franchise agreement.
The Franchising Code of Conduct includes an express obligation for parties to act in good faith. A breach of the obligation to act in good faith is subject to a civil penalty.
Requiring a franchisee to pay full franchise fees in circumstances where the franchisee is unable to operate the franchise due to government restrictions, is arguably a breach of the obligation to act in good faith.
The government has indicated that franchisors should be working with franchisees to waive, reduce or defer franchise fees while their businesses are affected by the Coronavirus restrictions 1.
The government has also pointed out that a failure to act in good faith could lead to a civil penalty of up to $63,000.00.
Given the requirement to act in good faith under the Franchising Code and given the indication by the government, franchisors must consider carefully whether it is reasonable to continue to charge fees and franchisees should consider whether a request to continue to pay fees is reasonable.
In addition to the good faith obligations set out above, it is the ACCC’s view that franchisors should be proactively reviewing what services and costs they pass on to franchisees and should consider whether it would be appropriate to cancel them or suspend them in order for savings to be passed on. This may include suspending or cancelling conferences and marketing services.
Where there has been a direct impact on the services provided to franchisees, the ACCC expects that franchisors will be adjusting the fees and payments they usually charge to franchisees so that franchisees are not paying for services they are not receiving.
If you are unsure about your position in relation to payment of franchise fees under the franchise agreement or you require further explanation or advice please contact us.
Should you require further information on these or any other franchising issues contact us.
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
- Posted by Ana Haarsma
- On April 22, 2020
- 0 Comments