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Tips To Assist Franchisors Responding To The Covid-19 Pandemic

Covid-19: Tips To Assist Franchisors

Franchisors have the potential to be affected on a number of levels a result of the Alert Level 4 lockdown imposed by the New Zealand government on 26 March 2020:

  1. Performance of obligations (including payment obligations) of both the franchisor and franchisee under the Franchise Agreement;
  2. Performance of obligations under lease documentation;
  3. Franchisees looking to exit lease and franchise agreements; and
  4. Payment/ retention of key employees.

Our tips to help franchisors survive this challenging time are:

  1. Communication and planning are key. Form a crisis team/ advisory board to assist you to make decisions.  We recommend including a franchisee representative so that they can assist with planning and making decisions which directly relate to franchisees.
  2. Have regular meetings – plan regular meetings or regional meetings with your franchisees. This is important to keep the flow of information maintained and to hear valuable feedback from franchisees.
  3. Know your franchise agreements – many franchise agreements contain a “Force Majeure” clause. See here for more information about these types of clauses.  Make sure you read and understand exactly what the clause says and what the effect of it is.  Make sure you are aware of which agreements are due for renewal.  Do you need to consider extending the term of the agreement rather than a renewal at this point in time?
  4. Consider delaying any franchise sales or purchases during the lockdown period.
  5. Consider adjustments to franchisee fees and marketing fees where they are not based on a percentage of sales. If your franchisees pay a local marketing fee, consider waiving this requirement to assist with their cashflow during this time.
  6. If your franchise is premises based and you or a related company is the tenant under the head lease, review your lease carefully to see if there any Force Majeure clauses or “no access in emergency” clauses and activate these clauses immediately if they allow you to suspend or pay less rent. Chat to your landlord first before you make any decisions about your lease – you might be pleasantly surprised with their response.  Read here for more information about the “no access in emergency” clause.  Discuss with your franchisee your strategy for dealing with the leasehold obligations in relation to their premises.
  7. If your franchisee has entered into a lease directly with the landlord, talk with your franchisee about their various options and their strategy for dealing with their leasehold commitments. Your franchise agreement will probably require your franchisee to consult with you and obtain your agreement to any proposed variations to the lease.
  8. Review any agreements you have with approved suppliers. Do these include Force Majeure clauses? Discuss with supply arrangements directly with suppliers.
  9. Keep up to date with any developments from the government which have the potential to affect or assist franchisees – for instance, the recent wage subsidies and business loan initiatives.
  10. Do not give your franchisee any advice on their obligations as an employer (other than general information). They should be directed to get their own legal advice.
  11. Ensure that your franchisees provide you with up to date information about their solvency so you can work with them at an early stage if any issues develop. Assist them with adjusting their business plans and budgets to reflect the impacts of the lockdown.
  12. If your franchise involves the supply of essential business services, ensure that that franchisee has the necessary supply networks in place to supply those services.
  13. Review any marketing initiatives and promotions which are scheduled to take place during the lockdown period. Do these need to be changed, postponed or withdrawn altogether?

Most importantly, communicate regularly with your franchisees with compassion.  Franchisees will be looking for their franchisor to show leadership during this challenging time. 

For more information, contact Lizandra Bailey at [email protected] or 021-774-333.

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