Quick wins for franchisors to avoid messy franchisee exits

In this blog, our franchising specialist Roz Goldstein considers some techniques franchisors can use to guard against franchisees avoiding their obligations under franchise agreements on termination, and that any exit is on terms which works for the franchisor. By employing some of these “quick wins”, franchisors can avoid messy franchisee exits.

A negotiated exit may be the best option – so don’t rule it out on principle

While it may be galling when a franchisee is trying to exit the franchise agreement early or is in breach of other terms, standing on principle may not always be the best commercial option for the franchisor.

Litigation against the franchisee is not only going to involve financial cost but also have other potentially negative effects on the franchisor such as bad publicity, a sucking up of internal resources and an impact on staff morale.

Using mediation to resolve issues may be more practical and cost effective. However, a carefully drafted Deed of Termination agreed between the parties to manage the exit may be the better option for everyone.

Avoiding the paper trail fail

In our earlier blog we looked at some common paper trail problems that can put the franchisor on the back foot when it comes to enforcing their rights against a franchisee seeking to exit. These included: not being able to find the signed franchise agreement, the agreement not being signed properly (or at all) and crucial details not being included.

To avoid this, franchisors can:

• make sure their lawyer or other adviser keeps an electronic copy of the final signed franchise agreement, 
• keep their own checklist of information pertinent to the agreement; and
• properly diarise renewals and deadlines and set-up automated reminders for these.

Anticipate and protect against a misrepresentation claim

The risks of misrepresentation can be mitigated by careful attention to “version control” in franchisee recruitment materials, and the close reference to a script for all discussions with prospective franchisees.

Where there has been misrepresentation, the franchisee may be able to walk away from their obligations under the agreement, so being able to robustly defend any such allegation from the franchisee will put the franchisor in a good position.