A Quick Guide for Industrial Lease Tenants: What to Consider Before Signing a Lease

Remember – an agreement to lease can be binding and oblige you to forfeit a deposit if you change your mind about the lease. Get advice before you sign anything.

1. Define Your Needs and Objectives

Before you start searching for industrial space, it’s essential to have a clear understanding of your needs and objectives. Ask yourself:

• Space Requirements: How much square meterage do you need for your operations, and how will you use the space efficiently? Do you have space to expand and what if you want to contract? 
• Location: What is the ideal location for your business? Consider zoning, proximity to suppliers, customers, transportation hubs, and workforce availability. Consider past flooding or bush fire events for the location. 
• Budget: What can you afford in terms of rent, utilities, and other operating costs? Establish a budget and stick to it. Lease costs increase every year so it is important to consider a worked example of what your rent and outgoings will be at the end of the lease, not just the beginning. 
• Lease Term: Determine the length of the lease term that aligns with your business goals. Industrial leases can vary from short-term to long-term agreements and while a holding over might work for some tenants, and month by month lease may not provide sufficient time to vacate cost effectively if, as the tenant you have to get out.

2. Location and Accessibility

The location of your industrial space can significantly impact your business. Consider that some areas are not accessible by all types of vehicles and might have high vehicle or heavy load detours. Planned future road works, particularly major works like road widening or installing traffic lights can hinder access for months. Review:

• Zoning and Land Use: Ensure that the property is zoned for your intended industrial use. Check local zoning regulations to avoid complications later. Keep in mind that city fringe areas may be subject re-zoning over time. 
• Proximity to Transportation: Evaluate access to major highways, ports, railways, and airports, especially if your business involves shipping and logistics.
• Local Amenities: Assess the availability of nearby amenities, such as restaurants, hotels, and retail, which can be beneficial for employees and business operations. Accommodation at a port might be handy for logistics and inappropriate for accommodation of your office staff. 
• Labor Pool: Consider the availability of skilled labour in the area, as this can impact your ability to hire and retain employees. Transport accessibility might also be an issue if your potential labour pool can’t get to you easily, or there is no where for safe parking. 

3. Types of Lease Payments

Industrial premises might be located in an estate owned by one landlord or developer, or stand alone, and this can affect the different types of outlays payable by tenants. 

It is not unusual in industrial and commercial leases for the tenant to be responsible for all costs associated with the property, other than capital costs. This can include things like security details, management rights, landscaping teams etc. It is important to understand the extent of costs payable on top of the rent. 

Outlays are generally estimated in advance and paid monthly, then reconciled at the end of the financial year with any overpayment amortised against the next outlays invoice, and underpayments invoiced as an additional fee. 

4. Lease Terms and Flexibility

Pay close attention to the terms and flexibility of the lease:

• Lease Duration: Consider whether a short-term or long-term lease aligns better with your business strategy. Longer leases may provide stability but could limit flexibility. 
• Renewal Options: Check if the lease includes renewal options, which can be essential for long-term planning and avoiding the hassle of relocating. For a newer business, a shorter initial lease with longer options might enable the business to become established without the pressure of a long lease, and for older premises, a longer initial lease with shorter options might provide the necessary flexibility to look for an upgrade in premises when the lease ends.
• Exit Strategies: It is not unusual for a commercial or industrial lease to be inflexible around exit, providing the landlord with options, but not the tenant. If your business is expected to change as it grows, consider what factors might mean you have to change premises to remain viable and request appropriate provisions for the lease to ensure that flexibility. Changing from a predominantly domestic to a predominantly export market might mean a need to shift location.

5. Rent and Operating Costs

Understanding the costs associated with the lease is crucial:

• Base Rent: When you create your budget for leasing premises remember that the base rent is only the beginning of calculating your costs and if it starts to high, you put your business under pressure. Budget conservatively. Determine the base rent and any escalations over the lease term. Escalations typically include:
  • annual fixed percentage increase or
  • annual CPI increase and
  • timed market reviews

It is highly unusual, but not unheard of, to have rental fixed for the whole of the term of the lease, payable in equal monthly instalments – much like payday lending. Your percentage increase is disguised behind predictable monthly payments.   

• Outlays: Clarify your responsibility for outlays, which are costs incurred by the landlord and payable by you. They can include almost every cost associated with the land, including rates, taxes, insurance and management fees, or may be limited to a fixed category of costs identified in the lease. These costs can vary widely, so negotiate terms that align with your budget.
• Operating Expenses: You will have all your usual expenses for operating and maintaining industrial premises including necessary utilities, telecommunications and internet access. For new premises you may need to check that those services have already been connected, or require installation.  
• Security: It is rare to enter a lease without providing at least one form of security. This can be by bank guarantee, personal guarantee or security bond paid in cash. Find out the amount of the security deposit required and the conditions for its return. Open ended bank guarantees should not be offered, and should have an expiry date no more than six years after the end of the lease term to match the statute of limitations. 

6. Property Condition and Maintenance

Inspect the property and understand your responsibilities regarding its condition and maintenance. It sounds simple and logical but just with people who buy houses without building and pest inspections, businesses go into leases without thorough checks.

• Property Inspection: Conduct a thorough inspection of the industrial space to identify any existing issues or necessary repairs. Document these and negotiate necessary repairs with the landlord. In the rush to get into premises these inspections can be missed and become a problem only after the lease has started and the tenant has been in the premises for a while. Drains partially block by tree roots can become the tenant’s problem rather than the landlord’s if not identified at the beginning of the lease. Keeping pipework clear and functioning is usually the obligation of the tenant once the lease starts. 
• Maintenance Obligations: Clearly define maintenance responsibilities in the lease agreement. Determine who is responsible for routine maintenance and major repairs. This is particularly important for things like fire safety equipment. If the responsibilities are not clear in the lease and there is a failure during a fire, or a malfunction causing damage to stock, no only can there be an argument about responsibility, but there can also be a failure in insurance cover if the equipment didn’t meet minimum regulatory maintenance requirements. 

7. Environmental Compliance

Industrial properties often have environmental considerations:

• Environmental Regulations: Ensure that the property complies with all relevant environmental regulations, especially if your operations involve hazardous materials handling or a product that can travel past the boundary of the property like – water, soot, sand, smoke, paint overspray etc. 
• Contingency Planning: Ensure you have all necessary contingency plans documented for compliance and to minimise risks. Understand the impact of neighbouring properties. 

8. Fire Safety and Equipment

Safety should be a top priority:

• Fire Safety Systems: Verify the condition and functionality of fire alarm systems, sprinklers, extinguishers, and emergency lighting. Non-compliance with safety regulations can lead to legal issues.
• Safety Inspections: Establish a schedule for regular safety inspections and ensure that both you and the landlord are aware of your respective responsibilities.

9. Infrastructure and Utilities

Consider your infrastructure needs:

• Infrastructure Development: If the property is still under development, understand the timeline for infrastructure development, including roads, utilities, and access.
• Utilities: Ensure that utilities, including water, electricity, and internet, are connected and meet your operational requirements.
• Contracting and Expanding Space: Do you have the flexibility to grow or shrink with market demand? In complexes where there are adjoining units you may have the ability to negotiate the acquisition or leasing of neighbouring units for expansion. Is there the possibility of building a mezzanine in the premises to meet your future growth? If so, will the increase floor meterage increase your rent?

10. Lease Negotiation and Legal Advice

Finally, don’t underestimate the importance of lease negotiation and legal advice:

• Professional Assistance: Engage a qualified lawyer experienced in industrial leases to review and negotiate the lease terms on your behalf. Commercial agents act in the interests of the landlord they represent and who pays them a commission on getting the premises leased. They are unlikely to prioritise your interests over those of the landlord and may seek to trivialise aspects of a lease or the premises that can have a significant financial impact for the tenant once the lease starts. 
• Negotiate Terms: Be prepared to negotiate terms and conditions to ensure the lease aligns with your business objectives and safeguards your interests. Be aware that timeframes can be subject to significant change if an industrial property is still under development. There can be years between getting approval to build a new industrial estate and actually having buildings available for a tenant to move into. 
• Due Diligence: Conduct thorough due diligence on the property and the landlord to ensure a smooth and reliable leasing experience. Ask if there are any thoughts or plans for sale, refurbishment or further development in the future. 

Seek professional guidance when needed to navigate the complexities of industrial leases, and don’t hesitate to ask questions and seek clarifications during the leasing process. Your choice of industrial space can have a profound impact on your business, so choose wisely and confidently.

Consumer Protection Laws in Business

PRIVACY FOR SMALL BUSINESSES

TERMS AND CONDITIONS

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1. Sole Trader

A sole trader is a very simple business structure and there are minimal set up costs involved for you as the business owner. You will need to register for an Australian Business Number (ABN) in your own name.

If trading under your own name eg. “Harper Lee Consulting” then you don’t need to register a business name. But if you want to trade under another name “Awesome Consulting” then you will need to register a business name. You are still the business, it just has a name that is not your name.

You will bear the responsibility over all of the business functions and will be completely personally liable for all of the debts that the business incurs.

If protection of your personal assets is important to you then this type of business structure might not be the most suitable for your needs. If you own a home or an investment property in your own name and someone sues the business, they are suing you and your property is on the line.

A sole trader business can have quite limited growth potential as it is heavily reliant on the owner and often can consume vast amounts of an owner’s time and resources. Even as a sole trader, you can employ other people, but the business is still intimately associated with you.

A sole trader business will pay tax at the personal tax rate applicable to the business owner.

It is relatively easy to end a sole trader business and cease trading, provided any debts of the business are paid in full.

A good example of a sole trader business could be a business consultant, a freelance writer, an at home hairdresser or a tradesman such as a painter.

2. Partnership

A partnership is similar to a sole trader, except it involves more than one owner. It trades under a registered business name and a partnership can comprise of owners with similar skills (eg. business brokers) or owners with complimentary skill-sets (eg. a graphic designer and a website developer).

Like sole trader businesses, partnerships are easy to establish. You simply register an ABN naming each of the partners in the application. It is also wise to have a partnership agreement prepared to protect the interests of everyone involved, while everyone is still friends and the business is working well. Partnership break ups without a written agreement are a bit like a divorce and can be messy and expensive.

Traditionally, law firms and accounting firms were structured as partnerships.

We’ve seen law firms dissolve without ever having had a partnership agreement and all the profits left in the business were spent on attempting to resolve disputes between the partners when it came to an end.

Partnerships are better for whole of business long term ventures between people. They are not really suited to short-term, part-time enterprises.  The number of partners can vary and can be comprised of individuals, or companies, or trusts.

Each owner pays tax at their own individual rates, depending on their share of the partnership profits. Partners don’t have to hold equal shares and can be split depending on the contributions of the partners. A partnership will require the agreement of all parties if the ownership structure or members are to change, and it is possible that a new ABN will be required if partners change.

When a partnership is working smoothly, it can be a great vehicle to operate a successful business. When a partnership is affected by personal differences between the owners, it can impact quite considerably on the successful business operation. Each partner is 100% liable for all the business debts and their own personal assets can be at risk if the partnership cannot repay its debts or taxes. This is the case even if the partner had nothing to do with incurring the debt in the first place.

We’ve seen partners in business lose their home because one of the other partners committed fraud through the partnership and went to jail, without being able to pay back the missing money. The people owed money were entitled to chase the other partners in the business to get paid, even though they knew nothing about the fraud.

3. Joint Venture

A joint venture is usually set up by a written joint venture agreement between the parties for a particular purpose or project. It is a good structure for operating a specific project instead of continuing indefinitely. It can vary how many entities are involved and can be comprised of individuals, or companies, or trusts.

It is best to seek legal advice before signing a joint venture agreement to ensure you understand your contribution to the venture, what happens when things change during the project and to ensure you are adequately protected if the joint venture is not successful.

A joint venture helps to grow your business through collaboration with other entities that have complementary skills or financial resources. The structure can vary depending on what you want to achieve, the governance type and obligations as well as the division of profits and losses to the parties. The agreement should also contain the process for disagreement or dispute resolution, if the parties’ relationships break down.

Each of the joint venture members are responsible for the profits, losses and costs involved in undertaking the joint venture project. The joint venture is a distinctly separate entity from the members other businesses and assets.

An example of a joint venture might be the combination of ride-share giant, Uber, with vehicle manufacturer, Volvo, for the purpose of producing driverless motor vehicles.

4. Company

A company is a separate legal entity to the business owners. It is a legal vehicle that can incur debts in its own name, can sue and be sued by other parties. It does not cease if an owner passes away but exists until it is wound up. The business owners are the shareholders and can often hold the position of director and secretary as well, particularly in a small business arrangement.

A director is responsible for the management and governance of the company and need not be a shareholder. A company secretary is responsible for ensuring that the reporting obligations of the company are met.

If you are considering setting up a company, you will need a company name, you will have to set up a governing structure with a constitution suitable to your business. The company must be registered with the Australian Securities and Investments Commission (ASIC) and will incur a yearly fee.

There are many complex parts to a company and essential for you to speak to your accountant or lawyer, or both, prior to setting up a company structure. It can have considerable set up costs compared to other entities and there are many legal obligations of the office-bearers. However, there are considerable benefits too.

It is an excellent vehicle to conduct business and ensure your personal assets, such as your home, are protected against legal action.

We had a client who, after audit, was required to repay some tax rebates received as R&D credits, together with penalties. The shareholders thought they had to sell their home to pay the company’s debt. They did not. The company remained responsible for its own debts and the shareholders got to keep their house.

Unless you give a personal guarantee for a business loan, then your private assets are protected. Since the company is a separate legal entity, it has a separate liability from the business owners. It can incur debts that are limited to the value of the company. If an aggrieved party sues the company for the outstanding debts, it is limited to the company itself and cannot sue the owners, unless they have given a personal guarantee, or fall within a category of liability where directors can be found personally liable – such as failing to pay superannuation.

There are other benefits with respect to taxation as well. The company pays tax at a company rate and can pay “fully franked” dividends to its shareholders, which can be very attractive to the business owners, depending on their individual circumstances.

Since November 2021 directors of companies (along with some other entities) now must be issued a Director Identification Number (DIN) which is issued by ASIC.

There are two types of companies – a privately owned company and a publicly owned company. So what is the difference between a private company and a public company in Australia?

4.1. Private Company

A private company is distinct from a public company because it is privately owned. It will often have “Pty Ltd” after its business name, and this means ‘proprietary limited’. This indicates it is privately owned, with limited liability.

A Pty Ltd or proprietary limited It is the most common structure for small businesses. It is incorporated, issues shares, will have a maximum of fifty shareholders, and each of the shareholders are not personally liable for the debts of the business. They will only be liable for any unpaid financial value of their shares. What this means if that if you purchase 10 x $1 shares but only pay the company $5 at that time of purchase, there will still be 50c owed against each of your 10 shares, and that must be paid if called by the company.

A private company is for protection of your personal assets. There are a large variety of share structuring options available, so it is definitely an option to discuss in greater depth with your accountant or lawyer.

4.2. Public Company

A public company is a company that can be listed on the stock exchange and is funded by investors, or a company to be limited by guarantee and operated as a charity or not-for-profit.

Not for profit means the members or shareholders are not entitled to a distribution of the profits of the business and the profits must be reinvested back into the business. In a for profit company, members or shareholders are entitled to receive a distribution of the profits if dividends are paid. Business is not sustainable if it does not generate a profit.

A public company often has “Ltd” or “limited” after its name to indicate that it has limited liability.

For profit public companies have a complex structure and are required to issue public documents when paying dividends or raising capital. Qantas is a public company. Any company you can purchase shares for on the Australian Stock Exchange is a public company.

A public company remains an option if you grow your business to the point where you would like to take it public and raise considerable share capital through a public offering.

A not-for-profit public company is an appropriate structure for a large charity.

5. Trusts

A trust can be an excellent asset protection structure, but you will need tailored legal and financial advice to correctly suit your personal circumstances. A trust is a vehicle that enables a trustee to act in the best interests and hold property or income for a particular purpose, for the benefit of the beneficiaries or trust members. The trustee can be an individual or a company.

Whilst there are many types of trusts available, there are two main types of trust used in small business. They are:

1. Unit Trust
2. Discretionary or Family Trust

The trust is set up with a formal trust deed that provides guidance on the way that the trust operates and the powers of the trustee.

There are other parties named in the trust deed – such as the settlor who won’t have any future involvement in the trust, but who is essential in its establishment.

Superannuation trusts are often established with limited investment categories, for example, an inability to invest in cryptocurrency.

The trustee is responsible for administering the trust. Provided that the trustee behaves appropriately, the trustee is usually entitled to be indemnified out of the trust fund for any liabilities incurred in association with the administration of the trust. If the trust is an individual trustee, their own personal assets can be at risk if the trustee is sued and a good reason to appoint a company as a trustee.

A trust may also be entitled to a 50% capital gains tax exemption, but a company is not. You should seek accounting advice when reviewing your tax obligations.

The most common structure in small business is a discretionary trust.

One of the most common structures for small property development is a unit trust.

Unit trusts have certainty in proportionate interests, whereas a discretionary trust is variable depending upon the decisions of the trustee. Where a greater degree of certainty in financial dealings of trust property is required, the unit trust is more effective. Each unitholder of the trust holds a specified number of units and the trustee has no discretion to give unitholders distributions that are inconsistent with the rights of other unitholders. You can transfer a unit to another unitholder, just like shares in a company.

We normally recommend that people involved in a unit trust structure enter into a unitholder agreement, similar to a shareholder agreement, to better protect their interests.

Services Online

Goods Online

If you manage a type of retail or goods-based business, necessary terms and conditions would include your refund and return policy. Ideally this would set out in very clear terms what the customer should expect in the event that they sought a refund or wanted to return their items.

Your customer must be aware of your terms and conditions before purchase for them to be binding. It saves a lot of hassles and time down the track if your terms of trade are clear and easy to access. It is worthwhile noting here that some terms and conditions cannot override Australian consumer guarantees. Any attempt to limit the Australian Consumer Laws (ACL), is invalid. Consumer guarantees now apply to products and services with a value up to $100,000, regardless of who the purchaser is. 

We can help you navigate your obligations under Australian Consumer Law.

Interesting Recent Cases

Consider the 2019 case of Australian Competition Consumer Commission (ACCC) v Jetstar.

Jetstar tried to present their air fares in a way that excluded any right to a refund for the cheaper air fares. The ACCC commenced proceedings against Jetstar for false and misleading representations, as well as breaching the automatic consumer guarantees that cannot be excluded, restricted or modified, no matter how cheap the air fare was for the consumer.

The Federal Court ordered Jetstar to pay a financial penalty of $1.95 million for the breaches as well as an undertaking to commit to amend its policies and practices to ensure they are consistent with the ACL. This undertaking was court-enforceable if they did not comply.

Another recent case that illustrates the importance of having express terms and conditions is the case of Hardingham v RP Data. Hardingham was a real estate photographer who had an exclusive licence with his business ‘Real Estate Marketing Australia Pty Ltd’ (REMA) for the copyright of his works. He had an ongoing informal oral agreement between him and the various real estate agencies for the use of his photographs and floor plan images for the agencies marketing campaigns. He did not have any express terms and conditions in place between him and the various agencies.

These agencies would then upload his work to Realestate.com.au for the marketing campaigns. In order to proceed with the upload of the photographs, the agency (often a subscriber) would need to agree to the terms and conditions on the website as set out by Realesate.com.au. The terms and conditions on the Realestate.com.au website contained a sub-license to “other persons” in a detailed form.

Realestate.com.au then sub-licensed to RP Data who then published the photographs on its websites and superimposed a logo on the images. RP Data is a subscriber-only database of real estate sales and rental history. After an appeal to the Full Court of the Federal Court of Australia, the court held by 2:1 majority, that the sub-licence to RP Data who then used and manipulated the photographs and images was an infringement of copyright.

The court held that the original owner of the copyright did not agree to the sub-licence when it verbally agreed to the various real estate agencies uploading the images to Realestate.com.au.

We have assisted professional real estate photographers to prepare appropriate terms and conditions for the use of their images to ensure they are paid for use.

This case is a good example where the copyright owner might have avoided going through the expensive and lengthy court process, and the subsequent need to appeal, to receive a judgement in his favour, if he had express terms and conditions that explicitly set out the use of the photographs and images.

Since he had only oral agreements between him and the real estate agencies, the court had to determine if the implied terms were so obvious and were necessary to give business efficacy to the contract. Thankfully the Full Court found that there was such an implied term in this instance.

COVID-19 Impact on Terms and Conditions

Consider another recent case that relied on terms and conditions under a contract that was affected by COVID-19 shutdowns is the case of Dyco Hotels Pty Ltd v Laundry Hotels (Quarry) Pty Ltd. This case concerned the sale of the Quarryman Hotel in Pyrmont, New South Wales (NSW). The contract was signed on 31 January 2020, with the date of settlement set for 27 March 2020.

The contract price was for $11,250,000 and included the associated hotel licence, the gaming machine entitlements and the hotel business itself. The deposit paid by the buyers was $562,500.

In the sale contract, there was an Additional Clause 50.1 which imposed various obligations upon the vendor, including the obligation to continue to operate the business “in the usual and ordinary course as regards to its nature, scope and manner”.

On the 23 March 2020, 4 days before settlement, public health orders issued shutting down the majority of hospitality services. This made it unlawful for the hotel to continue to operate, except for takeaway food and drinks, in accordance with the public health directions.

The buyers argued that the business sale was frustrated by the public health orders since the hotel was no longer able to operate in the “usual and ordinary course as regards to its nature, scope and manner”. They asked for return of the $562,500 deposit and claimed the value of the assets decreased by $1 million due to the public health orders.

The vendor disagreed.

The vendor’s position was that the hotel continued to trade as a going concern within the confines of the health orders and in accordance with the legal restrictions that had been imposed upon it. If the vendor had operated contrary to the public health orders, it would have placed the future operation of the business in jeopardy, including the hotel licence to operate. This would have damaged the goodwill of the hotel. The vendor also argued that they were entitled to terminate the contract, retain the deposit and seek damages for the loss of the bargain.

The NSW Supreme Court found in the vendor’s favour and held that the contract was not frustrated by COVID-19 public health orders. The vendor was entitled to keep the $562,500 deposit and recover damages as well for the loss of bargain. The court assessed the damages to be $900,000 and deducted the deposit of $562,500 from that amount.

Although the terms and conditions in this case were not online but contained in sale documents, it does demonstrate that carefully considered terms and conditions can make a big difference to the outcome of a dispute. 

The purchasers might have been better protected if there were any contractual warranties given by the vendor about the future financial performance of the hotel. Since there were no warranties given, the purchasers accepted the risks.  The purchasers were experienced in the Sydney hotel operations business and understood the various potential risks of legislative changes, despite not being familiar with the impact of a pandemic.

This is a good illustration of the impact of the COVID-19 pandemic on terms and conditions and contemplation of the risks associated with business operations. Following the lessons in this case, a vendor would be wise to include business conduct obligations under the contract that can be altered or changed to comply with public health emergencies. A buyer would be wise to include options to terminate the contract in the event where the value of the business has dramatically dropped due to unexpected circumstances.

Another COVID-19 impact on the operation of businesses can be seen in the recent case of Flight Centre Travel Group Limited Trading as Aunt Betty v Goel. Terms and conditions were online and agreed to by click wrap agreement – where the buyer has to check a box stating they agree to terms and conditions before being able to complete the purchase.

In the first hearing, Goel had been awarded a refund on the basis that the purchased flights hadn’t been received.

On the 5 November 2019, the customer (Goel) had made a booking online, for the return flights from Sydney to Delhi scheduled for flights during April 2020. The $2,336.30 flights were with Malaysia Airlines which cancelled the flights during March 2020, when COVID-19 public health orders restricted international travel.

The terms and conditions stated that Flight Centre was only agent and not responsible for delivery. If that were the case, Malaysian Airlines would have been liable to provide the refund, not Flight Centre.

The case we are referring to was an appeal by Flight Centre where it argued that the business Aunt Betty operated as an agent, and not the supplier of the service and therefore was not liable for actions by the airline in cancelling the flight. It would have set a damaging precedent for Flight Centre to be liable to refund all booking costs where it had not received the bulk of those funds, which had been passed on to the suppliers (like Malaysian Airlines) pending delivery.

The tribunal, on appeal, held that Goel would have been aware at the time of booking that he had booked the flights with an agent and not the actual airline carrier itself. It is interesting to note that the court decided that the booking could not have been made without the positive acknowledgement of the terms and conditions on the website. The court also decided that there was no breach of the consumer laws by the agent, and it was not liable to provide the refund.

Conclusion

In order to operate your business successfully, you need to be mindful of the ever-changing landscape that both COVID-19 public health emergencies create, and the increasing demands shaped by conducting more business in the online space.

The pass of change suggests you have your terms and conditions of trade reviewed and updated more frequently, with consideration of all aspects of a transaction.

If you are contemplating signing any contracts for business sales or purchases, it would also be advisable to ensure you are covered in the event that COVID-19 emergency public health order impacts adversely on the contract price and business valuation or operational requirements.

The new year is also a good time to evaluate your privacy policies and disclaimers, as well.

Consumer Protection Laws in Business

PRIVACY FOR SMALL BUSINESSES

TERMS AND CONDITIONS

website ownership basics

understanding copyright law

Watch the full video on Understanding Copyright Law below.

managing testimonials, comments, and reviews

anti-spam

Want to know how to handle nasty legal demands?

I’m on the road in between meetings today and just thought I’d share a story with you. I was speaking to a friend earlier and they said, “Oh, that’s such a great story. More people should know it.” So I thought I’d share it with you today.

We had a client who received one of those nasty letters of demand in the mail saying, “You’re in breach of our trade mark. Hand over your domain name, hand over your website. If you don’t do it in 24 hours or seven days or something ridiculous, then we’re going to take you to court and see you for a whole bunch of money.“

Now the client came to us and said, “Can you represent me in court proceedings?” I responded, “Hey, let’s stop and look at this in the moment and see if that is your only option.“

Court is not the only option

When we looked at the value in the client’s business, it was not in the trade mark. This is a client who had been selling a product that they imported from the UK and the company in the UK had registered the trade mark in the UK. There was a competing company in the US and they had registered the trade mark in the US. The American company came to Australia. They registered the trade mark in Australia. They waited a couple of years and then they wrote this nasty letter to our client saying, “You’re in breach of our trademark.” Our client had been trading in Australia before they started trading in Australia.

There are a whole lot of legal, technical arguments involved. We could’ve gone to court. We could have argued prior use and all sorts of things, but court proceedings take time and cost money. So the prospect of our client going to court was just not attractive. We were looking at maybe three years, $150,000 and no guarantee of a favourable result. We would have a result one way or the other, but we couldn’t guarantee it would help our client.

Looking at the business and knowing that the revenue wasn’t in the trade mark, we spoke to the supplier in the UK. They were happy to re-brand or they were already in the process of re-branding some of their products. So they said, “Okay, what we’ll do is we will assist you in re-branding.” They registered a domain name with the new brand. They registered the new brand as a trade mark here in Australia. Our client put together a 90 day plan, or at least we helped our client put together a 90 day plan to re-brand their business and to shift everything across to the new brand.

Because it was a 90 day plan and we made some promises to the American company about the process we were going to go through, they gave us that time because 90 days is a hell of a lot better than going through court, and there are certain requirements and rules around proper negotiation and all that sort of thing and trying to reach a commercial resolution. So the American company just had to wait.

Is there a better strategy?

In that 90 days, our client shifted his entire business onto the new brand. Now the value was in his database, so through a series of communications with the database, the whole database was shifted across to the new brand.

Our client did have to spend money on re-branding and shifting that database across, but he didn’t lose any revenue and most importantly didn’t lose any business. So once that process was complete, our client had a new website up. He had the entire database marketing to them and was changing them over to the new brand. We’ve got an agreement with the American company to say that we could sell out the end of the branded supply and not stock any new supply with that trade mark.

In the end, the American company bought our client’s domain name. Now, the reason behind that was the domain name was .com which means it can be used internationally, so my client still had the right to use that domain name in jurisdictions other than where there was a registered trade mark, or where he had permission. So he could still use it in the UK where they had the mark registered or his supplier had the registered trade mark and was happy for him to use it. In order for the American company to get hold of that domain, they had to buy it.

Instead of three years and $150,000 in court with no certain result, what we did is introduced a strategy enabling our client to re-brand in 90 days, shift his business across, not lose any money, and because the domain name was bought, his legal fees were effectively halved. So great, great result for the client, and just a really good example of the fact that there are options. Our client walked away with a stronger business and a protected brand.

• Don’t think just because you get a letter of demand that you have no choice but to go to court.
• Don’t think that you might not have an argument because there’s a whole lot of technical issues involved in legal cases, and sometimes it’s not all against you and sometimes there’s not all in your favour.
• There are options and it’s worth investigating what those options are before you go and get started. 

Why getting a contract checked by a lawyer can save you thousands!

Today I wanted to share a quick thing with you about checking your contracts.

We’ve got a client selling an aspect of their business. They’re selling it for $230,000. So what they’re selling is not their company, they’re selling the assets of the company. Now, they came to us and said, “Is this something I should get checked by a lawyer?”

Well, it’s worth $230,000 to you. Do you want to keep that money? Do you want to protect it? Do you want to make sure the transaction goes through and you get the money? It’s going to cost them around $1,500 to get us to review the contract, check that it’s all right, suggest changes, highlight risks and protect their interests.

Do you reckon that’s worth $230,000? 

 betteDo you have terms of service that help you manage client work?

One of the topics that came up at an Angel Investor and Entrepreneur breakfast was terms of service.

One of the people I was speaking to is in the website and marketing design and development space, and the challenge that they’ve got is clients who don’t give them material they’ve asked for, like images or written content.

The problem is they have no service contract that says “if you don’t give us material in 7 days, then we can continue as if there’s no changes or we can go on and get the work done“.

The challenge for the designer is that they have a workflow they’re trying to work with and a work stream and they have staff allocated to certain projects and if you can’t move forward in a project, it messes up the whole business. You end up with staff who have nothing to do and other staff who are overwhelmed because clients simply don’t respond with the required information.

One of the things you can use terms of service for is to manage the relationship with your clients and to get them to give you information that you need from them in order for you to complete the work you need to get the job done.

You might like to do business with a handshake, but written contracts aren’t a bad thing. The reason you put them in writing is to better manage expectations and manage relationships. 

Rules Against Unfair Contract Terms Apply to B2B Transactions

As you can see, I’m on the road today visiting some clients and business meetings, and that is a plane I can hear in the background.

One thing I wanted to talk to you about today is we’ve got a client who has been involved in a business-to-business relationship. The relationship started early in 2017, so after the changes to Australian Consumer Law in November 2016, and some of the provisions in the contract that our client has entered into are unfair contract terms.

Under Australian Consumer Law, unfair contract terms are terms that, for example, will give one party the right to do something but not the other party. So for example, only one party being able to end the agreement.

In this particular instance, our client was signed up to do a certain thing for a certain period of time. The other party didn’t deliver, so they cancelled and they exited. But the person they signed up with is still trying to charge them money. It’s just not going to be enforceable under the changes to Australian Consumer Law, unfair business terms because it matches all the indicators that would enable the court to determine the provision void and unenforceable. As a business owner, you should be aware that unfair contract terms now apply in business-to-business transactions involving small business. 

No, the law is not black and white

I’m on the road today in between meetings and just thought I’d share something with you. I’ve heard again this morning that law is very black and white.

Actually, it’s not. If it was black and white we wouldn’t need lawyers, we wouldn’t need courts to argue over what something means.

There’s a joke going around that if you give a sentence to six lawyers and ask them to tell you what it means, you’ll get six different meanings. It’s true. So, don’t assume that law is black and white.

Yes, we try and get clear, concise decisions by putting together contracts, and agreements, and stuff like that, but if things weren’t subject to interpretation, we wouldn’t have courts and we wouldn’t have a whole bunch of lawyers that we do today. So, no, law is not black and white. It’s all shades of grey and it is subject to interpretation.

One thing I say to people is, if you’re going to get into a dispute, if you think court is the answer, you have never got better than a 50/50 chance of winning.

I’ve been involved in cases which we thought we were dead set going to win, and we’ve lost. I’ve been involved in cases where we just thought we were going to lose and we’ve won.

There’s so many things that it’s subject to on the day, or on the days of court, that you can’t predict what the decision is going to be. So don’t think law and courts are the only way, and you’re going to get justice or it’s going to turn out your way.

You can’t make those assumptions. You’ve got to look at the cost, and the time, and everything else involved. So, please keep that in mind.