buying a Food
FranChise?
What you should knoW
“Potential franchisees should inspect all
equipment, understand their obligations
relating to the premises, obtain food based
business licences and undertake any relevant
training for safely handling food.”masao Watanabe | Franchise lawyer | leGalvisionfEATURE:
Food & Bever
Age
amount to replace or repair. The last thing
you want to discover is that the storage
fridge needs a new condenser one week after
you become a franchisee!
Before engaging a professional to assess
the equipment, speak to the franchisor.
Some major franchises provide assistance
to the incoming franchisee (i.e. you) by
conducting an inspection of the existing
franchise and can point out any issues withthe equipment. It is usually the existing
franchisee’s responsibility to repair or replace
the equipment before you come on board.
This is important because once the purchase
is finalised, you accept all responsibility for
the repairs (and the potentially significant
costs associated with upgrades that the
franchisor may require). If the franchisor
expects to make any improvements, you
should ensure that the outgoing franchiseeorganises this before the sale (or seek a
discount on the purchase price based on the
value of upgrades the franchisor requires).
It’s not unusual for a franchisor to expect
franchisees purchase new equipment to take
into account new food offerings. A number
of franchise networks have upgraded systems
or equipment and required franchisees
to spend significant money as a result.
Although the franchisor should explain
this in the disclosure document as part of
the purchase process, it is important to be
very clear on the timing of such upgrades
to budget for these expenses (or negotiate a
lower price).le AsiNg oBligAtioNs
You will likely operate your franchise from a
premises (unless it is a mobile franchise), in
which case it is essential that you understand
your obligations under the lease. When
considering the lease, it is important to think
about the following:
Term and duration of the lease: Ensure
that the lease including the option(s) to
renew are as long as the term of the franchise
agreement.
Rent and outgoings: Assess this against
your business plan to ensure you can
comfortably pay the rent and outgoings,
even if the business isn’t going so well. Also,
make sure to project into the future as your
rent will increase. If you intend to operate
in a shopping centre, there are a number of
additional costs that you should confirm
with the lessor (or franchisor), such as
promotional levies and outgoings.
Refurbishment clause: Most shopping
centres require refurbishment to the premises
before they will renew a lease. This can easily
exceed hundreds of thousands of dollars
as you will likely be required to restore the
premises to base building standard.
Make good obligations: What will be
required for you to reinstate the premises at
the end of the lease? Given the huge financial
commitment a lease requires, we advise that
you seek legal advice on the lease in addition
to the franchise agreement.