By now you would have heard that Woolworths is planning to axe struggling retailer Masters. Woolworths ended up repudiating its lease and payment agreements in regards to a Bendigo development site for a Masters’ store.
It is estimated that Woolworths will have to pay approximately $11 million to the lessor, as the judge stated that “Masters and Woolworths did not act reasonably and in good faith to resolve the issues that arose, and that they terminated the relevant agreement for reasons that that agreement did not allow”.
With Woolworths’ recent announcement about it’s plan to drop hardware business Masters, a couple of clients have recently asked, what’s an appropriate way to exit your business? Surely you can’t continue to foot the bill for expensive leases if you are not able to continue trading?
When it comes to an exit strategy, even for a new business it is best to think about these things early. This way you can incorporate your forward planning into your contracts with third parties. For already established businesses, sometimes poor foresight can mean a messier exit – so when it comes time to renew and review your contracts, keep in mind the following tips:
- Know what you can terminate your lease for and make sure that your termination clause covers all situations you might find yourself in in the future (what if you want to terminate because you are making a loss in your business, or what if you simply have a change of heart? It’s better to consider this now than to get penalised in court!)
- Perhaps you can have a few option periods rather than one long lease term?
- Make sure you are aware of the termination clauses relating to your supplier and client contracts.
- Note down any notice requirements that you may have to send your landlord, your suppliers/clients or your creditors – this will make it much easier in the future when comes the time to actually wind down or sell so that you do not have to trawl through all those contracts.
For things to keep in mind when selling your business, check out our article here.