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.
A recent case demonstrates the Fair Work Ombudsman’s commitment and willingness to protect vulnerable, exploited employees by holding not only businesses accountable for contraventions of the Fair Work Act 2009 but also external advisors who are involved in the contravention. If an advisor is found to be involved in a contravention of the Act, they will be found to have accessorial liability, and significant penalties can be imposed on them.
The international publication Who’s Who Legal, through independent research and peer review, has recognised MST Lawyers and four of its lawyers as the stand out firm in Australia in franchising law.
The requirement to act in good faith is an important term implied by law into contracts and franchise agreements. What exactly the term requires and how far it extends has been the subject of many judicial decisions over the past two decades. The requirement that a franchisor exercises its discretions under a franchise agreement reasonably, and in good faith was given a thorough review in a recent Full Federal Court case.
The case concerned the franchisor of the Pizza Hut franchise, Yum and 190 of the 200 independent franchisees in respect of a strategy to increase market share by reducing prices and simplifying the product offering. The case illustrates the Court’s approach to determining whether the implied term has been breached, and is indicative of the expectations of those exercising a discretion under a franchise agreement.