McGrath terminates agreement with long-serving franchisees

By Nick Hall | 17 Dec 2018 View comments

ASX-listed real estate agent, McGrath has opted to terminate a long-standing agreement with its franchised offices in Sydney’s Lower North Shore.

In an update posted to the ASX, McGrath announced that the group had withdrawn its offer to extend the agreements, which are due to end in April 2019.

“McGrath is currently considering the optimum structure for the continuation of the McGrath business and brand presence in the specified regions in the Lower North Shore and confirms it will maintain its presence in this key market,” the statement read.

According to the AFR, the real estate franchisor had reportedly been negotiating with principals, Dean Mackie, Piers van Hamburg and David Howe, however, failed to reach a mutual agreement.

The failure to secure an agreement extension sees the principals of the franchise forced to vacate the offices by the end of April, however McGrath CEO, Geoff Lucas reiterated the brand plans to maintain its presence in the area.

“We have a clear plan to rejuvenate our presence in the region, including opening new offices to strengthen our presence and profitability, which has fallen below expectations in recent years,” Lucas said.

According to the 2015 company prospectus, McGrath franchise agreements are typically five years with an additional five year option exercisable by the franchisee.

“McGrath’s franchise network has grown strongly since the first franchise was granted in 2006,” the prospectus reads. ”No McGrath franchisee has elected not to renew its franchise agreement and move to another network.”

The latest announcement comes just one month after McGrath revealed it would be diversifying its portfolio of properties in a partnership with luxury home-hotel operator, Luxico, localised specifically to the Lower North Shore region.

At the time, McGrath head of network property management, Michael Conolly described the Lower North Shore franchisees as some of the network’s longest serving and most trusted, indicating that was a major reason why the Luxico partnership was to be trialled there.

“It’s (the Luxico partnership) being tested in a large franchise group that’s been with us basically since we started franchising. They’re very progressive, leaders in outsourcing in our industry and re-engineering our business,” Conolly told Inside Franchise Business in November.

The exit of the Lower North Shore franchisees damages McGrath’s recently announced plans to bolster franchise development, outlined in the group’s FY18 results.

In its results presentation, McGrath announced a key priority for FY19 was ‘office growth with a focus on the Eastern seaboard, predominantly in the franchise network’.

At present, McGrath operates 69 franchised offices with 382 agents across the country.