Termination of Franchise Agreements

By: Lance Winslow
Submitted: 2007-01-17 11:42:32
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Why would any franchisor want to terminate a franchisee who pays royalties into the system, assists the franchisor in extending his brand name and helps the franchise system gain market share, growth and profitability? Indeed all good points to the question; why? Well often a franchise outlet is under performing, undermining the system or not accomplishing those objectives.

It is for this reason as a franchisor and often feeling more like a grandfather or coach, I had to come to terms with when it was time to sever the franchise relationship. I therefore put this clause into my franchise agreements;

6. TERMINATION AND DEFAULTS

6.1 Termination by Franchisor

Franchisor may terminate the Franchise Agreement at the time indicated, if any of the following events occurs, each of which shall be deemed a default:

(a) immediately, if the Franchisee or the Franchised Business is declared bankrupt or judicially determined to be insolvent, or all or a substantial part of the assets of the Franchisee or the Franchised Business are assigned to or for the benefit of any creditor, or the Franchisee admits its inability to pay its debts as they come due, or the Franchised Business is seized, taken over, or foreclosed by a governmental official in the exercise of his duties, or seized, taken over, or foreclosed by a creditor, lienholder or lessor, provided that a final judgement against the Franchisee remains unsatisfied for thirty (30) calendar days (unless an appeal bond has been filed), or if a levy of execution has been made upon the license granted by this Agreement or upon any property used in the Franchised Business and is not discharged within five (5) business days; or

(b) immediately, if the Franchisee abandons the Franchised Business by failing to operate the Franchised Business for five (5) consecutive calendar days during which the Franchisee is required to operate a business under the terms of this Agreement or any shorter period after which it is not unreasonable under the facts and circumstances for Franchisor to conclude that the Franchisee does not intend to continue to operate the Franchised Business, unless such failure to operate is due to fire, flood, earthquake or other similar causes beyond the Franchisee’s control; or

(c) immediately, if the Franchisor discovers that the Franchisee has made any material misrepresentations to the Franchisor relating to the acquisition of the Franchised Business; or

(d) immediately, if the Franchisee is a competitor of the Franchisor or a competitor of an affiliate of the Franchisor or a competitor of any sister or co-brand company of the Franchisor or a competitor of a vendor of the Franchisor. In such case the Franchisee will be terminated, the Franchisee will forfeit their mobile truck/unit(s) and their associated equipment which will be transferred to other Franchisees to assist with community fundraiser events and the Franchisee will be required to pay a misrepresentation penalty of five (5) times the franchise fee to the Franchisor that will be distributed to charitable organizations so designated by a Franchisee committee convened for just this purpose. The Franchisee will be liable to the Franchisor for reasonable attorney’s fees and court costs incurred by the Franchisor in any litigation related to this matter; or

(e) immediately, if the Franchisee is convicted of, or pleads nolo contendere to, a felony, commits any criminal misconduct relevant to the operation of the franchise, a fraud, any act or crime involving moral turpitude, or any other crime or offense that Franchisor believes is likely to have an adverse effect on the System, the proprietary marks or the goodwill; or

(f) immediately, if the Franchisee, after curing any default after notice and opportunity to cure, engages in the same noncompliance, whether or not corrected after notice; or

(g) immediately, in the event the Franchisee attempts to transfer any interest in the Franchisee of the Franchised Business in violation of Section 5; or

(h) immediately, in the event that the Franchisee violates the provisions of Section 3.19 or 3.20 hereof;

(i) immediately, in the event that the Franchisee does not notify Franchisor of Franchisee change or discontiuance of use of address or change of telephone number or change of e-mail account address within fifteen (15) calendar days of such change; or

(j) immediately, in the event that the Franchisee fails to perform the required car wash fundraisers or community service projects; or

(k) immediately, in the event that the Franchisee operates the Franchise in a manner that creates an imminent danger or threat to public health or safety; or

(l) upon ten (10) calendar days’ written notice to Franchisee of its failure to pay any fees or other amounts due to Franchisor, any affiliate of Franchisor or any other Franchisee that is not cured within such ten day period; or

(m) upon thirty (30) calendar days after notification to Franchisee of noncompliance with any national, federal, state or local law or regulation applicable to the operation of the Franchised Business unless cured within such period; or

(n) upon thirty (30) calendar days after notification to Franchisee of failure to secure and maintain in force all required licenses, insurance, permits, registrations and certificates relating to the operation of the Franchised Business, or failure to operate said business in full compliance with all applicable laws, ordinances and regulations, including, without limitation, all government regulations relating to occupational hazards and health and environmental regulations, worker’s compensation insurance, unemployment insurance, withholding and payment of national and state local income taxes, social security taxes and sales taxes or fail to maintain liability insurance; or

(o) upon thirty (30) calendar days’ written notice to Franchisee of any failure of Franchisee to perform any obligation under this Agreement that is not cured within such thirty day period; or

(p) upon thirty (30) calendar days after notification to Franchisee of failure to have sufficient supplies to meet customer demand; or

(q) upon thirty (30) calendar days after notification to Franchisee of failure to hire and maintain sufficient staff in order to handle customer volume at all times; or

(r) upon thirty (30) calendar days after notification to Franchisee of failure to pay your employees and staff the required wage described in Section 3.5, or

(s) prior to the opening of the Franchised Business, if Franchisee or any of its designated employees fails to complete the initial training program described in Section 4.1.5 to the satisfaction of Franchisor; or

(t) upon ninety (90) calendar days’ written notice from the date hereof, if Franchisee does not secure premises for and commence the operation of the first Location for the Franchised Business within such period; or

(u) immediately at any time following one hundred eighty (180) calendar days from the date of this Agreement, if Franchisee continues to operate another business in violation of Section 3.3 hereof following such one hundred eighty day period; or

(v) at such time as Franchisor and Franchisee mutually agree in writing to terminate this Agreement; or

(w) if Franchisee is convicted of drunk driving while driving a car wash truck or while driving a vehicle while towing a mobile car wash unit.

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Obviously I am not a lawyer [would not be caught dead being a lawyer in fact]. I am an entrepreneur and this is what I felt I had to do in my company. If you own a franchising company you may wish to contact a franchise lawyer and ask them to consider what is the best way to protect your company in such a potential eventuality. So, perhaps you should consider this in 2006.

Lance Winslow

Article source: Expert Articles