If you choose not to renew, you will also be subject to the non-compete and non-solicitation agreements contained in your franchise agreement after termination. The scope of these commitments may very well be a key factor in your decision to renew or not. It is important that both parties understand their obligations to each other when they leave the agreement, as well as the consequences after termination. The code allows you to sell or transfer your business to third parties. First, you need to check your franchise agreement in case there are any rules as to whether you can sell your franchise. It is necessary to indicate what the infringement consisted of and when the franchisee must remedy it. The franchisor does not interfere in your negotiation because it is in a difficult situation. You want to sell your business for as much money as possible in order to leave the system happy and have good things to say about the brand. But they also want their new franchisee (your buyer) to get the lowest possible price so that they get a high return on investment and be happy franchisees. It`s no secret that franchisors spend significant amounts of money to develop and protect their brands (and their trade dress in the case of restaurants and retail stores).
It is therefore not surprising that franchisors take the end of a franchisee`s mandate very seriously. Most franchise agreements require “immediate” de-branding after the franchise agreement is terminated. The answers to these questions depend on the language of your specific franchise agreement, although some general principles can be identified: from a franchisee`s perspective, the main reason for terminating a franchise agreement or not renewing it is profit. This means that the franchise business does not generate enough profit and the franchisee therefore ceases business activities. Another contribution to the termination of a franchise agreement relates to the underlying lease when the franchisee loses the lease or rent increases make the franchise unprofitable. Sometimes trade restriction clauses are too restrictive and cannot be enforced. There are also limited circumstances in the Franchise Code of Conduct that allow franchisees to circumvent the restriction of commercial clauses if they have unsuccessfully attempted to renew the franchise agreement. However, in most cases, the clause restricting trade applies and you should take it seriously. Seek legal advice if you are unsure. Below, we`ve listed some of the most likely scenarios, but these aren`t exhaustive for ALL potential scenarios. To truly understand the exit strategies for a particular franchise, you need to look at that brand`s specific franchise agreement and seek advice from a franchise lawyer. Either way, here are some of the most common questions that will be answered.
As franchise and trademark attorney Jeff Fabian shares, “These days, depersonalization requirements tend to extend much further to online ownership and include things like stopping the use of corporate email addresses and social media activity as a franchisee. Tweets and status updates related to the franchise will likely need to be stopped, and old posts will likely need to be deleted. While 5, 10, or 20 years or more (the typical term of most franchise agreements) may seem like an eternity when you sign your franchise agreement for the first time, that period will eventually end. When the time comes, what should you do? What are your rights and obligations? What control does the franchisor have over your next step? Are you planning to start a franchise or have you already signed a franchise agreement? It`s an exciting and stressful time in your life. They invest a lot of time and money. Maybe you had to pay to equip the commercial premises. They have royalties and many obligations to the franchisor. Chances are, you`ve focused on the best job possible to ensure the success of the business and may not have thought about what will happen when the franchise expires.
If your agreement ends soon, it`s a good idea to ask a lawyer to review your contract to fully understand the implications and your options. You may lose the funds you deposited in the business if your franchise agreement is terminated. This may include money spent on advertising and marketing, or funds paid to the parent company for the franchise agreement. In fact, if the termination was your fault, such as a lease or other contract, you might be forced to pay the rest of your agreement because you were the one who broke the rules of the contract. If you do not agree with the violation or if you do not consider it appropriate, you can talk to the franchisor and try to reach an agreement. It`s always good to have all your negotiations in writing in case something goes wrong. Whatever the reasons, the vast majority, if not all, of franchisors allow their franchisees to sell their franchisees. While many franchisors have a right of first refusal, which means they can match any offer you receive for your business, they won`t interfere with your negotiations. .