Concluding a franchise agreement marks the end of the business relationship with the franchisor. But there are certain financial commitments that may remain under the franchise agreement and related contracts. These obligations may vary according to the agreement’s terms, commercial arrangements and the franchising laws of Australia. Thus, a clear review of which costs may extend beyond the agreement can help franchises plan effectively. In such situations, a franchise agreement lawyer Perth can review the agreement and help identify which costs continue after the arrangement ends.
In this regard, this guide outlines key financial obligations that may apply after a franchise agreement ends under the Australian franchising framework.
Outstanding Franchise Fees and Unpaid Debts
The majority of franchises usually provide details regarding the types of payments that should continue after the agreement comes to an end, facilitating clear completion of financial obligations.
Some examples of outstanding payments include:
- Unpaid royalty fees
- Unpaid marketing and advertising payments
- Unpaid supplier invoices
- Recovery cost of unpaid payments, if allowed under the agreement
Examination of the payments in the franchise agreement allows you to establish what types of financial obligations remain.
Leases Obligations
The lease has its own terms, and it is necessary to examine them independently from the franchise agreement. Knowledge of the interaction of both agreements will assist you in planning your property obligations as a franchisee.
Lease-related obligations include:
- Rent and outgoings to be paid until the end of the lease or lease assignment
- Make good obligation
- Other lease obligations agreed with the landlord
The end of a franchise agreement does not impact the leases in any way since they have separate laws in different states and territories.
Finance and Loan Commitments
Business finances are typically organised via independent agreements with financial institutions. It is important to take into account the franchise exit strategy while considering finance commitments to ensure proper financial planning. Some franchises also run through joint venture structures, so a joint venture agreement lawyer can confirm how shared funding obligations are treated on exit.
Typical finance obligations include:
- Repayment of the business loan
- Financing of equipment
- Financing of vehicles
- Personal guarantee given to lenders
Each financing agreement will outline conditions for repayment and alternatives in case of business change or closure.
Employee Entitlements and Business Closure Costs
Employee duties continue to be regulated according to the workplace legislation of Australia during the business closure process. Planning of those costs will assist in compliance and financial management. Because these closure costs can be complex, business settlement lawyers Perth can help finalise employee entitlements and other liabilities as the business is wound up.
Possible obligations include:
- Outstanding wages
- Paid leave
- Long service leave, if applicable
- Redundancy payment
- Superannuation contribution
Other business closure costs might include clearing of stocks, advisory services and finalising utility bills.
Taxation and Regulatory Obligations
Settling of taxation and regulatory requirements represents one of the key elements in closing down a franchise business. The completion of these obligations ensures that the business terminates its activities in accordance with Australian requirements.
These obligations may include:
- Completion of Business Activity Statements
- GST settlement
- Income tax obligations
- Completion of PAYG withholding
- Cancellation of business registration if required
Records maintenance will assist in compliance and record-keeping in the future.
Guarantee and Indemnities
Guarantees and Indemnities may provide personal guarantees for any outstanding amount owed, indemnities concerning contractual obligations, some legal claims connected with business operations and recovery costs allowed under the contract. Given how these clauses interact with other contracts, a commercial agreements lawyer can help interpret the extent of any guarantees and indemnities that survive termination.
Depending on the agreement, they may cover:
- Personal guarantees for unpaid amounts
- Indemnities relating to contractual obligations
- Certain legal claims arising from business operations
- Recovery costs where permitted under the agreement
Early Termination Payments
In cases where a franchise agreement ends before its scheduled expiry, the agreement and the Franchising Code of Conduct may set out compensation arrangements. Understanding these provisions helps franchisees assess their financial position before an early exit.
Post-Termination Restrictive Covenants
Sometimes franchise agreements contain post-termination restrictive covenants that can affect franchisees’ future business operations. Such covenants need to be thoroughly examined to understand the consequences of their practical and financial nature.
Conclusion
Ending the franchise agreement is not merely about completing all business operations. The franchise needs to check whether all the pending payments have been made or not. There may be various other factors that the franchise will need to look into prior to ending the agreement. As every franchise agreement will contain unique terms, the examination of the agreement with the help of a franchise agreement lawyer can provide a better understanding of the obligations involved.