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:
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.
You may also be interested in
We regularly blog on subjects related to franchising in the UK, commercial law and employment law.
Goldstein Legal’s founder, Roz Goldstein to retire from Leading Goldstein Legal in September 2023
Goldstein Legal’s founder, Roz Goldstein to retire from Leading Goldstein Legal in September 2023 Goldstein Legal, the legal franchising boutique that operates from Nexa, the consultancy platform, announces that founder...