Outline Options

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What are the policies for termination or transfer?

Outline Options

Hopefully you've picked a great franchisee and the franchise business is operating profitably and all is well. If, however, something unforeseen happens and the franchisee needs to be terminated or transferred, you need to have written, binding policies. In fact, you need standard policies for the length of the term of a franchise and for renewing or extending terms for successful franchises. If you don't have these policies, you may find yourself on the expensive end of a lawsuit.

Item 17 of the Uniform Franchise Offering Circular (UFOC) lists provisions of the Franchise Agreement that pertain to renewal, termination, transfer and dispute resolution. You must describe these procedures in detail. Specifically, include provisions for:

  • Length of the term of the franchise
  • Renewal or extension of the term
  • Requirements to renew or extend
  • Termination by franchisee
  • Termination by franchisor, without cause
  • Termination by franchisor, with cause
  • Cause defined and defaults that can be cured
  • Cause defined and defaults that cannot be cured
  • Franchisee obligations upon termination / non-renewal
  • Assignment of contract by franchisor
  • Transfer by franchisee
  • Franchisor approval of franchisee transfer
  • Conditions for franchisor approval of transfer
  • Franchisor right of first refusal to acquire franchisee business
  • Franchisor option to purchase franchisee business
  • Franchisee death or disability
  • Non-competition covenants during the term of the franchise
  • Non-competition covenants after the franchise is terminated or expires
  • Modification of the Franchise Agreement
  • Integration / merger clause
  • Dispute resolution by arbitration or mediation
  • Choice of forum
  • Choice of law

   

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Jerry Mayo