Tips on what you can do to receive payment
The new BIFSOPA act is now in effect, which means your business practices must change with it. In this blog post, the MDL Construction Law team run you through how you can enforce your payment claim to comply with the new procedure.
An example of when you must enforce a payment claim
In this example, let’s say you issued a 14-day invoice and you haven’t been paid after 15 days. Another five days go by, and you’ve now realised that the developer hasn’t issued the payment schedule. What do you do?
In this scenario, the developer has missed his opportunity to defend an adjudication – but the clock is now ticking on you. If you don’t act quickly, you’ll lose your payment claim adjudication entitlement for this month.
What you must do to enforce a payment claim
Because there is no longer a 2nd notice warning under BIFSOPA, you must issue a letter of demand stating that your contract time has expired without payment.
This letter of demand should state that the debtor’s 25 days for payment schedule delivery is about to expire, leaving you with only 5 days to commence proceedings or adjudicate. They should either pay you or face legal action.
If you don’t send this letter of demand (on day 26) and let the five days lapse, then you will have to go back and issue a NEW payment claim – yet you can’t issue a new claim again in the same calendar month.
For this reason, you must act within 5 days, or you’ve lost a month’s cash flow – which can be crucial for your business.
You’ve enforced your payment claim under the Act within the time limits of the legislated 25-day payment schedule.
Got questions about BIFSOPA? Talk to MDL
If you’re not sure how the new BIFSOPA will affect your business, McCarthy Durie Lawyers can help. Contact our experienced Building and Construction Law team on 3370 5100 or fill out the contact form here.
The new ‘mega ombudsman’ for complaints regarding financial disputes
If you feel you’ve been treated unfairly by an insurer, bank or other finance provider, there is now one place to go in Australia for consumers and small businesses to submit complaints regarding financial disputes.
From 1 November 2018, the Australian Financial Complaints Authority (AFCA) has been ready to receive complaints from consumers and small businesses. In its first year alone, the organisation is expecting to receive 55,000 complaints.
So, what is AFCA, what does it do and how do you submit complaints? This article by CANSTAR gives you all the details.
5 things your franchisor must provide you
So you’re thinking about purchasing a franchise business and taking the exciting step of becoming a small business owner.
You’ve met with your prospective franchisor, and things are looking good. You’re happy to take the next step since you’ve looked at their business model, and can see a future for yourself and your family.
What’s the next step?
If you’ve expressed your interest at this stage, your franchisor will send you a letter of offer or intention, and a disclosure document. You’ll pay your initial deposit (which may be refundable depending on the particular franchise), and then the franchisor will send you the franchise agreement for you to sign.
But before you do take that next step, it’s important that you understand exactly which documents your potential franchisor must provide you.
Here’s a list of the five important pieces of information that must be included in your franchise agreement.
What documents should a franchise or licence agreement include?
1) Your rights and obligations when operating the franchise
When you’re operating a franchise, it’s important to understand that you’re in a working partnership with the franchisor. Like any partnership, both parties will need to “do their bit” to ensure success.
That’s why you need to know the rules that govern the relationship – both what you have to do, and what your franchisor must do – now, so that you don’t find out down the track that the relationship is one-sided or onerous.
Your rights and responsibilities may include:
- The need to operate within your territory (and what recourse you have to protect it)
- Your responsibility not to add products or services that are not approved by the franchise group – or whether you have any scope to do so
- How much you need to pay for marketing and promotion
- How to resolve disputes between you and the franchisor
- Any standards for staff uniforms and presentation
- …and more.
2) All the fees that you’ll have to pay
Of course, you’ll need to make sure you have enough financial backing to cover your business’s costs – especially in the establishment phase of the business. That’s why you’ll need to fully understand the fees you’ll be liable for.
- Annual fees
- % of sale
- Annual licence fees
- Marketing fees
- Rental/lease fees (if applicable)
Pro Tip: Take note of the way fees are calculated and how they increase over time – whether that’s according to CPI increases, a fixed percentage increase, or another formula.
Some fees will be calculated according to a specific formula, taking into account sales volume or other factors. If you don’t understand this formula, you could end up paying more than you anticipated.
That’s where having a lawyer to help you “translate” this document can be a big help. They can help you to see the real effect of these fees on the profitability (or otherwise!) of the franchise business.
3) A copy of the franchise code
The franchisor must provide you with a copy of the franchise code, which outlines all the laws in relation to franchising in Australia.
4) Financial and legal certificates
Franchisors will usually require you to seek independent financial and legal advice. These certificates, when signed off by your advisers, will demonstrate that you’ve done so.
5) A copy of the lease (If applicable)
If your franchise business is on a premises, you’ll need to enter into a lease with the landlord.
In some cases, the franchisor will enter into the lease with landlord and then sub-lease that premises to you. You’ll be agreeing to take over the responsibilities under that lease.
In other cases, (usually with smaller franchise businesses) you will be required to negotiate and enter into a lease directly with your landlord.
If that’s the case, make sure you:
- Keep the duration of the lease consistent with the franchise agreement.
- Understand your obligations to pay rent (and how much)
- Are aware of any annual rent increases
- Understand your outgoings, and what that entails (including utilities, garbage, rates, water, and land tax in some cases)
Before you sign a franchise agreement, talk to MDL for advice
As you can see, there are many different issues to consider before you sign a franchise agreement. That’s why it can pay to have an expert on your side.
If you need advice or assistance with interpreting a franchise agreement, a conversation with McCarthy Durie Lawyers can help. We’ll take the time to understand your situation, and offer you straightforward advice about your options and the best way forward. Contact the Business Law team at McCarthy Durie Lawyers on 07 3370 5100 or email email@example.com
Questions to ask yourself before you sign
As a new franchise business owner, in most cases you’ll be operating your business from commercial premises – which in most cases means you’ll need to arrange a lease for your business.
Naturally, every franchise agreement will be different. But in most cases, negotiating and signing the business’s lease will be your responsibility as the franchisee.
Your business premises may be leased directly to you from a third-party landlord, or in some cases the franchisor takes the lease and then subleases it to you as the franchisee.
Whichever structure applies to your agreement, it’s important to note that you are always responsible for the full term of the lease with either the franchisor or landlord. You are only released from your obligations if you either negotiate a sale, or the franchisor takes back the business.
Of course, it’s so important that you study your franchise documents closely and seek independent legal and financial advice. After all, they will outline your responsibilities and obligations under the franchise agreement.
But if you’d like some initial guidance about what to look for, this news post details some questions you might like to ask yourself before you commit to a lease for your new franchise business.
Who’s responsible for your business fitout costs?
When you’re moving into a new business premises, you’ll most likely need to arrange for a suitable fit-out. It’s a major task, often with a major price tag!
Make sure you understand ahead of time who is responsible for organising the fit-out. Your franchisor may have specified suppliers that you must use, or they may have a ‘minimum standard’ that you have to meet if you choose your own suppliers.
Lastly, to ensure your fitout suppliers have time to do their job, think about negotiating “early access for fitout” in your lease, or alternatively a rent-free period to accommodate the fitout.
Have you considered all leasing costs in your finances?
As we’ve spoken about before, as a franchisee you’ll be responsible for many different costs – and many of them apply to your lease. It’s important to understand and plan for these costs, so you don’t get hit with any nasty surprises.
- Are your leasing costs calculated as a percentage of sales? If so, does your cash flow forecast still show that you can be profitable when you take ALL costs (wages, fees, rent, power etc) into consideration?
- Does your new landlord require a security bond such as 3 months’ rent?
- Do the term of your lease and your franchise term match up with each other? You don’t want to be caught in a situation where your franchise term ends earlier than your lease – meaning you’ll be paying rent AFTER the business is out of your hands. And vice-versa!
You’ll need to think carefully about all these costs, and factor them into your finances accurately.
What insurances & deposits will your landlord require?
Your landlord will probably require you to take out appropriate insurances – such as plate glass and property against theft/breakage – as a condition of your lease. Double-check to make sure you are able to obtain them before you start trading.
Another cost to prepare for is the security deposit or bank guarantee that your landlord will probably require as security for you occupying the property. If you default on your lease or damage the property, the landlord can draw down on the security deposit or bank guarantee to pay rental arrears or make good any damages.
And while you’re looking ahead, make sure you clarify the “permitted use”, which describes the type of business that you can run in your shop. Make sure you are legally able to sell the products you intend to!
Lastly if you’re running a food business, ensure you check that you have the relevant approvals in place. For example, you may need to acquire a food business licence from the local council.
What happens when your franchise term ends?
Even if you have a 5 year agreement with your landlord, you should still consider what happens to your business after this period.
Does the landlord offer an option to renew the lease on the existing terms? Or will you have to start the process all over again – with all the associated fees that will bring?
Remember that, as a new franchise owner, you may only really start making your money back after paying all those setup fees after a few years. So you definitely don’t want to have to start all over and pay again.
Consider to that the franchisor may want to re-sell the franchise if you haven’t met your KPIs – so keep a close eye on how you’re travelling over the journey.
Do you have an exit strategy in place?
As a franchise business owner, it’s important to ensure you have an exit strategy, both from your lease and the franchise agreement.
In the unfortunate event that your business seriously struggles, and you decide to “pull the pin” and make an early exit, you still may have to pay the remaining term’s fees, or wait until they find another buyer.
To avoid this scenario, consider adding a “transfer agreement” into your franchise agreement, stating that you can sell the business during your term. You can then sell the business as you would any other business, either in terms of profit and loss or at a break-even point.
Talk to MDL for advice on a lease for your franchise business
As you can see, there are many different issues to consider before you sign a lease for your franchise business.
So if you need advice or assistance with putting together a lease on your terms, a conversation with McCarthy Durie Lawyers can help. We’ll take the time to understand your situation, and offer you straightforward advice about your options and the best way forward. Contact the Business Law team at McCarthy Durie Lawyers on 07 3370 5100 or fill out the contact form here.
McCarthy Durie Lawyers are proud to announce our acquisition of Anderson Brady Lawyers,
a Brisbane based firm located in the heart of the CBD. This is an exciting time for us, as we
integrate the experience and skillset of the AB team. The incorporation of Anderson Brady
Solicitors into McCarthy Durie Lawyers is a continuation of our commitment to provide
excellent legal solutions and client focused outcomes.
We are very happy to welcome Ross Anderson and Lyndon Huang to MDL. Ross brings with
him almost 40 years as a practicing lawyer and joins the team as Special Counsel. Since the
mid 90’s Ross has focused most of his attention on Commercial Property matters, Property
Developments and Estates. Lyndon joins MDL’s conveyancing department, adding his 11
year of industry experience and vast knowledge in off-the-plan and developer conveyancing
to the collective.
You can find both Ross and Lyndon based in our Brisbane City office, or if it is more
convenient, you can arrange a time to meet at any of MDL’s locations across Brisbane and
McCarthy Durie Lawyers
Level 9, 239 George Street
Brisbane QLD 4000
07 3370 5100
GPO Box 789
Brisbane Q 4001