Franchise Agreements and Refusal to Renew
Legal Article GuideBy: Lance Winslow
When the franchisor signs a franchise agreement with a franchisee it is very much like the marriage only it has a specific infinite time period called a term. Upon the end of the franchise agreement period a franchisor and a franchisee may agree to continue their marriage and renew the franchise agreement or one or more parties may decide to go their separate ways. A franchisor may have good reason for not wishing to renew the franchise and franchise law predicts that without a good reason failure to renew could in fact create litigation.
However, if a franchisor states all possible reasons in advance that they were may not renew the franchise agreement with a franchisee in the initial franchise agreement, then the chances of litigation are lessened. Below is a copy of a clause that I used in both our master franchise agreements, as well as our individual franchisee agreements, which stated that conditions in which our company may choose not to renew;
1.3.3 Refusal to Renew
Notwithstanding the foregoing provisions, Franchisor will not be obligated to renew Franchisee’s rights to operate as a Franchisee of Franchisor if Franchisee has failed to satisfactorily comply with Franchisee’s duties, obligations and covenants during the preceding term or is then in default of any provisions of this Agreement. The determination of satisfactory compliance will be within the exclusive discretion of Franchisor in good faith. If Franchisor refuses to renew, Franchisee must continue to perform under this Franchise Agreement until its expiration.
Continuation. If Franchisee is in the process of transferring the Franchised Business at the time of expiration Franchisee may be allowed to continue to operate the Franchise with Franchisor’s express consent, following the expiration or termination of this Agreement. The continuation will be a month-to-month extension of this Franchise Agreement. Otherwise, all provisions of this Agreement will apply while operations continue.
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Since this is an area of law in the world a franchising, which has been known to create a controversy so, any and all franchisors are well advised to speak to a knowledgeable and an experienced franchise attorney on the subject matter. I hope you'll take my advice and seek legal and also consider all this in 2006.
Lance Winslow - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs/
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