By Chad Finkelstein As a potential franchisee, you probably have a lot of immediate concerns in mind â€“ finding a franchise system, looking for a site, and raising the money for your business, to name a few. However, you should also be mindful of the issues that will arise years later, namely what you are going to do when your initial agreement with your franchisor ends. Option 1: Extension The initial term of a franchise agreement determines the duration of the contract between you and your franchisor. As a potential franchisee, you need to make sure that this term is long enough to allow you to recoup your initial investment and make a profit before you leave the system. While franchisors want to give you this opportunity with some certainty (after all, everyone benefits from a successful franchisee), they won`t necessarily want the term to be long enough for them to get stuck with a frustrating franchisee with no recourse, unless terminated for unusable cause. If a franchisee wishes to sell its business, a franchisee cannot refuse to accept the sale inappropriately. If you want you to do two things, but only do one of those things within the allotted time, that`s always a reason for the franchisor to terminate your franchise agreement, as a violation needs to be completely corrected. If the franchisee`s managers have given a personal guarantee, leaving could expose the guarantors` personal property to risk. When a franchise agreement is terminated and the franchisee is accused of fault, a franchisee may apply to a court for a restitution order equal to the amounts that the franchisee would have expected if the franchise agreement had been concluded for the remainder of its term. It is important to remember that the franchisee has the right to receive an answer to these questions well before the end of a temporary franchise.
If you don`t do this (or if you don`t do it in the right way), it may result in a civil penalty for violating clause 18 of the Franchising Code of Conduct. We are very attentive to what happens before and at the beginning of a franchisee-franchisee relationship, but what will happen when it ends? Jeff Fabian owns Fabian, LLC, an intellectual property and economic law firm that serves franchisors and franchisees. . . .