“Friends with benefits” is how a specialist retail leasing adviser has described the relationship between some franchisors and major property owners, with the franchisee often left out of the loop.
As the director of Queensland-based Lease1, which he has operated continuously since 1997, Phil Chapman has decades of experience in retail leasing.
He suggested that a glaring omission from the substantial recommendations made by the Fairness in Franchising inquiry is reform of the retail leasing system, which he said is in need of “a complete mindset shift”.
“Although the recommendations refer to the establishment of a taskforce to address these recommendations, such an entity will not be able to reform the complex layer cake of leasing arrangements,” Mr Chapman said.
“For decades, franchisors and landlords have maintained a ‘friends with benefits’ relationship that neither party wanted the public to know about.”
According to Mr Chapman, “both these friends essentially derive their income from the performance of retail franchisees, but whereas the landlords must disclose and deal with their lessees under fairly stringent retail lease legislation, the same appears wanting when it comes to some franchisors”.
“For change to be achieved from chapter 20 of the inquiry’s report, there needs to be a complete mindset shift on retail lease arrangements,” he said.
Mr Chapman believes more transparent communication around leasing is needed to create a level playing field on which small franchise businesses can compete.
He also called for better education training — for both franchisees and franchisors — on the intricacies of retail leases.
“This is not about opening hours and paying the rent on time, but understanding how the lessee/landlord relationship works, and the mindset and attitude to constantly be seeking value out of this business contract,” Mr Chapman said.
“Franchisees should never be isolated from these processes. In fact, they must be educated to become effective contributors to the lessee/landlord relationship and gain responsibility for the term of lease and future leases’ outcomes.
“After all, it is the franchisee’s capital, effort and livelihood on the line.”
Mr Chapman added that the argument used by some franchise brands about their franchisees not having “the acumen to be exposed to landlords” also doesn’t hold water, given that they are — or at least should — be in constant contact with their franchisees, putting them in a prime position to drive this education.
“Just like our political parties, once the election is won, they are campaigning to win the next one; a retail lease is the same,” he said.
“Any lessee, whether they be in a franchise system or not, must be actively engaged in the renewal of the lease no later than 18 months beforehand. Leaving it any later can only play to the landlord’s outcomes.”
Mr Chapman concluded: “If the franchising taskforce was to wrap up the recommendations within chapter 20 of the report, and seek to promote sector-wide education on retail shop leasing and how to be an effective lessee, the Senate inquiry will have delivered long-term positive reforms.
“The challenge for the franchise sector is to not wait for the taskforce, but to use the inquiry as the circuit breaker to disrupt current mindsets.
“For franchisors, this will require a clean whiteboard approach and a corporate governance towards best practices for retail leasing arrangements as, clearly, there needs to be change.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.
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