Can you lose your option to purchase or your right to use assets of the franchise granted in a franchise agreement?
A client recently approached MST Lawyers with this very question. The Franchisor had:
(a) an option to purchase the assets of the franchise within six months of the expiry or termination of the franchise agreement; and
(b) a right to use those assets freely within the six months allowed for the exercise of the option.
The Franchisee entered into liquidation, and the liquidator claimed both the option to purchase and the right to use were extinguished under section 267 of the Personal Property Securities Act (PPSA) as they were unregistered security interests.
After conducting a review of Australian, New Zealand and Canadian case law, MST Lawyers concluded that an option to purchase the assets of a business, in the form that was presented by our client, was not capable of forming a security interest. The option to purchase was not extinguished even though it was not registered on the Personal Property Securities Register (PPSR).
However, the conclusion in respect of the right to use was less clear. This article sets out MST Lawyers’ view on the arguments raised by the liquidators and suggests Franchisors consider registering on the PPSR where they may wish to enforce rights to use franchise assets after termination of a franchise.