Tip for Franchisors Ask your Franchisees for a Release

March 22, 2013, 8:21 AM

As a best practice, franchisors should get in the habit of asking for releases throughout the lifecycle of the franchisors relationship with franchisees. While some franchise agreements contain a release, depending on the jurisdiction, and the circumstances, releases in franchise agreements may be difficult to enforce. However, releases entered after the execution of a franchise agreement are much more likely to be enforced, and can prevent expensive and time-consuming litigation for the franchisor. Accordingly, franchisors should look for opportunities to obtain releases from franchisees, that will protect the franchisor from old, often stale, claims of fraud and misrepresentation during the initial franchise sales process, which are often asserted only years later, after an initially good franchisor-franchisee relationship has soured. Examples of the type of events that lend themselves to franchisors seeking a release include, among other things, franchisor extensions of a franchisees time to open additional franchises under an area development agreement, franchisor approval of a transfer, and franchisor waiver(s) of franchisee defaults, including delay or deferral of royalty payments or advertising fees.

For further information on this topic, please contact Stephen E. Story at (757) 624.3257 or sestory@kaufcan.com. --Stephen E. Story