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MITIGATING THE EFFECTS OF CORONAVIRUS – A FRANCHISING PERSPECTIVE

MITIGATING THE EFFECTS OF CORONAVIRUS – A FRANCHISING PERSPECTIVE

In recent days we have had a number of clients contact us asking about their legal position in the wake of the coronavirus outbreak. We are being asked whether customers are obliged to pay for services they have cancelled, whether cancellation fees are chargeable, and whether franchisees are still liable to pay their management service fee.

All of these are important questions but the answers will depend on a review of the relevant contracts and, of course, we can provide specific advice if required. In addition, as a franchisor the most effective way that you can mitigate the impact on your and your franchisees’ businesses is to focus on the practical, rather than the legal. That is what franchisees are looking for from their franchisors.

On Tuesday the government announced a number of measures to ease the economic effects of the virus. The Chancellor, Rishi Sunak, confirmed that it would guarantee the availability of £330 billion of business loans to help businesses weather the effects of isolation measures. Assistance is focused on the retail, leisure and hospitality industry, which will receive a waiver of business rates for 12 months, and the potential for cash grants of £25,000. The government is also working on measures to assist individuals, including three month mortgage holidays and protection from eviction for renters. We will provide updates on how to apply for that assistance when further details are announced. A summary of the current proposals can be found at: https://www.onthespottax.co.uk/blog/entry/2020/03/17/coronavirus-loans-grantstax-small-businesses

In addition to the government’s measures, any business interruption insurance policies should be reviewed to assess whether they would cover any losses. The Association of British Insurers has confirmed that ‘standard’ policies will not usually cover the current circumstances, but some businesses may have purchased extended cover that could apply, so any businesses who have insurance should check the position with their broker.

The most important thing that franchisors can do at present is to support their franchisees to find solutions that will help protect their revenue streams and enable their businesses to continue. Those solutions could come in many forms, and will of course depend on the sector in question. For instance, wherever possible, online services should be offered. Free cancellations for any bookings made going forward, to encourage continued custom, can work in a number of sectors. New business models and increased use of technology should be considered. How those changes will be implemented is not clear but what is clear is that franchisees are looking for guidance and “inspiration” from their franchisor. In addition all franchise businesses have a large number of experts – their franchisees – who should be encouraged to forward their ideas to address the situation, to be shared within the network – in our view, this is a major advantage of the franchise model.

The franchise sector needs to work together. By co-operation, not just between franchisors and their franchisees, but also between franchisors we may reinforce the perception that franchised businesses are more resilient in times of financial downturns. Do please let us know of the steps that you and your franchisees are taking so we can share these ideas with others in franchising. We hope to circulate updates and advice if we receive input from franchisors, so if you are prepared to share your ideas we will circulate those ideas with attribution.

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