Be prepared

By Sarah Stowe | 29 Oct 2015 View comments

Franchisee disputes with landlords over retail tenancies and with franchisors over contracts have escalated during the past two years, according to the Victorian Small Business Commissioner, Mark Brennan.

Unique to Victoria, for five years Brennan and his office have been assisting SMEs with their disputes. The office recently passed the milestone of more than 4000 disputes valued at more than $200 million.

ñThe recent escalation in our involvement with franchises disputes is a reflection of the growth of complexities within the industry linked with a greater acceptance and understanding of our role and the low cost dispute resolution we offer,î he explains.

Mediation by the Small Business Commissioner costs only $195 per party, usually takes less than a day and the agreement is signed on the spot.

With a success rate in excess of 80 per cent, it is excellent value for any franchisee with a grievance, remembering that taking a dispute to court can cost tens of thousands of dollars.

ñNot only franchisees are seeking our assistance but also franchisors who regard us as a prompt and economic way of resolving a dispute allowing both parties to mend the relationship or move on with their lives,î he says.

ñWe try and achieve a commercial and realistic outcome for both sides. Disputes involving franchisees are just like any other business-to-business disagreement and can usually be traced back to agreements not being read carefully or a change or breakdown in the business relationship.î

A shared goal is essential yet many people are not fully aware of the requirements of a franchise and enter into an agreement with stars in their eyes, he believes.

ñCashing in your superannuation and taking a franchise is not a foolproof way of taking it easy and easing yourself into retirement. It might be an ideal plan for the franchisee, but the franchisor is looking to maximise income from every outlet,î he cautions.

A recent example of misunderstanding is a business equipment franchise involved in the retail industry.

The retailer believed that it was meeting all obligations under the arrangement and was shocked to learn it was not achieving the profit targets required by the franchisor.

At mediation it was discovered that the franchisorÍs expectations had not been explained at the start of the relationship.

The retailer, if better informed, would not have entered into the agreement or marketed the product more aggressively in order to reach the appropriate profit levels.

The CommissionerÍs office mediated an extension of time for the retailer to increase its marketing emphasis in the hope of reaching its new profit targets.

The ubiquitous marketing fund is another constant source of aggravation. Former employees purchased a machinery parts franchise but fell into disagreement with the franchisor over use of the marketing fund.

The franchisor was brought reluctantly to the mediation table but quickly understood the problems facing the franchisee and agreed to buy back the business allowing all parties to walk away with their dignity intact.

Brennan warns that many franchise agreements nominated that the franchisee must meet the costs of both sides legal fees if a disagreement arises and the franchisor believes the franchisee to be in breach of the agreement.

That left one unsuspecting franchisee, faced with a modest fee of $2500 from his solicitor, being taken to court and forced to pay the franchisorÍs legal costs of $34,000.

That is why a fee of $195 per party linked with an efficient and effective mediation service is a popular option for the franchise industry in Victoria.n

For assistance to investigate or mediate a dispute call the VSBC on 13 22 15 or toll free on 1800 136 034 or visit the SBC website or email