Let’s assume the following: Fred is 48 years old and as the owner of 3 profitable independently branded community pharmacy businesses scattered around the town of Bedrock, considers himself a successful and experienced businessman who is able to spot a “dodgy deal” a mile away.

One day Fred is approached by local property mogul (and non-pharmacist) Mr Slate who has a vacant building on a prominent corner of the main street of Bedrock.

Mr Slate, offering what appears to be attractive commercial rental terms, invites Fred to shift his nearby pharmacy into this vacant building, on the pretext it will lead to increased profits as additional customers will be attracted to its most prominent location.

Mr Slate indicates the lease document is just a standard one, but as Fred has always had his lease agreements reviewed by his lawyer Barney, he sends the proposed lease to Barney for review.

Barney reports back to Fred that while the lease reflects the proposed commercial rental terms, it also includes the following:

  • A clause granting the landlord the first option to find a buyer for the pharmacy if Fred decides to sell this business;
  • A clause preventing Fred from owning a competitive pharmacy business;
  • A clause requiring Fred to pay a significant lease transfer fee as a result of selling all or a part interest in the business;
  • A clause allowing the landlord to unilaterally change the financial amounts payable where the lease is transferred to a new business owner;
  • A clause allowing the landlord the right to buy the business from Fred if pharmacy ownership laws change.

Understandably, Barney is shocked by the outcome of his lawyer’s review of the lease and advises Mr Slate he will only sign the lease if all these clauses are removed.

Mr Slate begrudgingly agrees and once the lease is signed, Fred proceeds to relocate his nearby independent pharmacy.

Given the prominent new location, Fred decides to adopt a prominent pharmacy franchise and after comparing the costs of various systems, selects to go with what he considers is the biggest and best of them “Chemist Cavehouse” with its signature claim of “every price is rock-bottom!”

After checking the fees payable information section, Fred proceeds to sign the standard Chemist Cavehouse franchise agreement presented to him, as he is anxious to immediately start trading at Mr Slate’s location under the Chemist Cavehouse brand.

The relocated business quickly establishes itself and Fred thinks he was very smart to not only shift but to rebrand.

Two years later, out of the blue Fred is approached by a high-profile buyer Alan Bond who operates an opposition franchise “Low Pulse Pharmacy” (with its signature claim “everyday prices to give our competitors a heart-attack”).

This buyer offers an amazing sum to buy all of Fred’s 3 pharmacies with the proposed price representing a huge premium above market value. As the old adage goes, there is only one Alan Bond and as such Fred cannot refuse to take up this offer (and already starts dreaming about how he will spend the rest of his days in retirement enjoying the sunny French Riviera- obviously Fred’s dream was pre-Covid!).

Fred contacts his lawyer Barney to discuss this offer and to draw up a sale contract whereupon as expected Barney asks Fred for copies of his signed premises lease and signed Chemist Cavehouse franchise agreement.

Shortly after sending these documents to Barney, Fred gets a distressing call from Barney who informs him that the signed Chemist Cavehouse franchise agreement included:

  • A clause granting the franchisor the first option to find a buyer for the pharmacy if Fred decides to sell this business;
  • A clause preventing Fred from owning a competitive pharmacy business;
  • A clause requiring Fred to pay a significant franchise transfer fee as a result of selling all or a part interest in the business;
  • A clause allowing the franchisor to unilaterally change the financial amounts payable where the franchise is transferred to a new business owner;
  • A clause allowing the franchise the right to buy the business from Fred if pharmacy ownership laws change.

The main reason for Fred’s distress was the realization that the first of these clauses he had foolishly signed without a legal review would prevent him from taking up the “once in a lifetime” purchase offer from Alan Bond.

The moral of the story- true intelligence is understanding the best value proposition is to acknowledge your limitations rather than trying to save a dollar here or there.

In blunt terms, get specialist legal advice on any legally binding document you are being asked to sign.

Prepared by
Anthony Cannizzo
Partner
Robert James Lawyers
Level 10, 200 Queen Street
Melbourne 3000

Mobile 0439 00 2012
Reception 03 8628 2000

Email: anthony@robertjames.com.au
Web site: www.robertjames.com.au