Quest serviced apartment franchisees look to "rebrand" in wake of lawsuit

Serviced apartment franchise Quest is facing a number of exits from its network following settlement negotiations in a class-action lawsuit, according to the Australian Financial Review.

Nine Quest apartment block locations are reportedly set to “debrand” after a claim against Quest in the Federal Court saw 29 franchisees take issue with proposed changes.

These changes include a proposal to lift the group’s gross sales fee on franchisee agreements from six to 8%, as well as the inclusion of a “brand fee” of 1%.

The AFR reports Quest apartments that have debranded as part of the class action include one in Flinders Lane, Melbourne, and one in Darling Harbour, Sydney.

The report says it is understood 12 franchisees have sold their business back to Quest. Reportedly two franchisees that have five properties are still pursuing the case.

Quest was contacted to confirm the details, but a spokesperson declined to comment.

Franchise Council of Australia deputy chairman Jason Gehrke told SmartCompany that in any scenario, the challenge for franchisees that “debrand” and go on to operate their business under their own steam is a possible restraint of trade agreement.

This could be in place to ensure they are not competing directly with the franchisor, or other franchisees in the area for a period of time.

Gehrke advises any franchisee wanting to break from the franchisor to “try to negotiate terms of mutual consent”.

“If not, you risk a full and robust response from the franchisor,” he says.

Gehrke says franchisees that do go out on their own often find it easier if they are in a fixed location rather than being a mobile business, as it is more obvious when in a fixed location that the business is now trading under a new name.

In 2013, a High Court case in New Zealand saw a franchisee ordered to sell back the business to its franchisor after it rebranded three gyms without permission.

Owner of franchise Club Physical, Paul Richards, received an email “totally out of the blue” from a franchisee saying three of his ten franchised gyms were being renamed.

The franchisee, Stuart Holder, pulled out of the Club Physical franchise after the end of an initial two-year franchise royalty holiday and re-branded the three gyms as “Jolt Fitness”, putting in place new signs, classes and staff uniforms.

Justice Helen Winkelmann granted an injunction requiring Holder to close the gyms immediately but then allowed Jolt Fitness to keep trading while the two parties negotiated an amicable handover.

The Quest franchise was founded in 1988 and last figures on its website show that it has around 150 properties across Australia and New Zealand.

This article first appeared on SmartCompany.