Franchisee right to renewal and franchisor constructively trying to stop us.

[Shall4]

Hi, I run a franchise business with my friend, we are self employed. 21 months before our contract end date we asked about renewal options and also what happens if we decide not to. Our franchisor has now stopped us from taking any enquiries or bookings beyond our contract end date, this will jeopardise our business in that by the time our renewal discussions come into place 3-6 months before the end date we will not have any bookings in the diary and will not want to renew due to it no longer being a profitable business and we would be almost back to square one. Our franchisor knows the importance of us being able to continue taking enquiries now and we can’t see anything in our contract to say she is able to stop this a whole 21 months before our end date, does anyone have any experience with this? Any suggestions would be helpful, thanks

 

[Clause_Two]

Hi, I run a franchise business with my friend, we are self employed. 21 months before our contract end date we asked about renewal options and also what happens if we decide not to. Our franchisor has now stopped us from taking any enquiries or bookings beyond our contract end date, this will jeopardise our business in that by the time our renewal discussions come into place 3-6 months before the end date we will not have any bookings in the diary and will not want to renew due to it no longer being a profitable business and we would be almost back to square one. Our franchisor knows the importance of us being able to continue taking enquiries now and we can’t see anything in our contract to say she is able to stop this a whole 21 months before our end date, does anyone have any experience with this? Any suggestions would be helpful, thanks

Hi Shall4

This sounds like an incredibly tough spot to be in (especially in an industry that relies so heavily on long lead times).

It strikes me that the core issue is your contract’s renewal window (3-6 months) doesn't match your industry's booking cycle (18+ months). This is resulting in a bit of a deadlock. E.g., you will understandably be reluctant to renew the franchise agreement with an empty diary, but you can’t fill the diary without renewing the franchise agreement.

While your contract may not explicitly allow this 21-month restriction, the franchisor is likely acting out of 'brand protection' fear (e.g., they are concerned about stranded customers if you won't be around to fulfil the bookings because you choose not to renew the franchise agreement). The key to resolving this without a legal battle is to break the deadlock as soon as possible.

If you have the right to renew the franchise agreement, and if you wish to exercise that right, I would seek to have the renewal conversations with the franchisor sooner rather than later. I would also take the opportunity to ensure that the renewal provisions in any new/restated franchise agreement better align with your industry’s booking cycle to prevent this issue recurring.

Franchise agreements are complex documents and the 'reasonableness' of actions taken by a franchisor often depend on the specific wording of the franchise agreement in question as well as the nature of the industry to which the franchise agreement relates. What I've set out above is therefore provided for information purposes only and it is not intended to constitute legal or professional advice.

Clausetwo.com

 

[Lisa Thomas]

Sounds like you need advice from a solicitor here. DM me if you can't find one on here and want a recommendation.

 

[StrategyDoctor]

This does sound commercially damaging, and you’re right to question the basis for it.


I assume one possible reason a franchisor might try this is if you’re entering customer contracts / taking deposits beyond the franchise term — if you then don’t renew, it potentially creates consumer and brand risk?

But stopping all enquiries or bookings 21 months out feels extreme unless your agreement (or the Ops Manual) clearly gives them that right?

Some practical steps if you haven't done so already:

• Put your concerns clearly in writing with a tight deadline for their response.
  Ask them (in writing) to point to the exact clause / Ops Manual rule that allows them to restrict future bookings, especially this far ahead, and to explain the rationale.
• In your email set out the commercial impact: which would include it destroys your forward pipeline and effectively forces a non-renewal decision, before renewal talks even start (at 3-6 months?).
• Propose a sensible fix: a reasonable period before contract renewal, something that allow bookings to continue, for example that bookings can be transferred to a successor franchisee or other neighbouring franchisee for example (if you don’t renew).

If there’s no clear contractual right for them to do this, and it’s preventing you trading normally, it could be a serious issue — so get a franchise solicitor to sanity-check the relevant clauses quickly.

If the franchisor are BFA members, you can also reference expected standards of fair dealing/transparency etc in the BFA Code of Ethics.

Question: are they stopping all enquiries, bookings, and taking of deposits, or only one of those?

If the contract appears to allows them to do this, something else for you to think about, or if you talk to a solicitor:-

• UK franchise agreements are essentially commercial contracts; outcomes are very clause-driven.
• However, even where there’s no express “support” promise, there are recognised principles around not preventing the other party performing the contract / this can be implied cooperation in some contexts.
• Courts have also discussed good faith in “relational” to long-term contracts (often including franchise-style arrangements) — not always in your favour, but it strengthens the argument against arbitrary, commercially destructive behaviour.
• If the franchisor is a BFA member, the BFA Code of Ethics emphasises standards like fair dealing, transparency and responsible franchising (and is often used as an industry benchmark even though it’s not legislation).

 

[The Resolver]

First step is to establish what is in the Agreement. I have experience in both drafting franchise agreements for franchisors and challenging them for franchisees. I'm happy to advise on teh contractual position at no charge if you send to me ([email protected]).

The franchisor's position is understandable in that you are wanting to take on contractual commitments to provide a service that you may not be able to provide causing damage to the brand and thus to other franchisees. Usual solution is for the Franchisor to arrange for other franchisees (or themselves as a floating franchisee) to take over the contractual obligations you may have by then taken on. It's very important in franchisor planning as the same problem can happens simply by a franchisee becoming insolvent or otherwise ceasing to trade. This should have been covered in the Agreement and may show lack of foresight on the part of the Franchisor.

I feel sure this can be resolved amicably. I resolve disputes by identifying the real interests of each side. Its not in the franchisors interest to put up roadblocks in your way to stop your renewal..

You need to fully understand the impact of the Agreement on the situation and identify mutual solutions. The precise detail depends on the nature of the service. For example. are you territory based?

Click the link in my sig below to book a free advice call and let me have a look at the Agreement beforehand.

 

[Shall4]

Hi Shall4

This sounds like an incredibly tough spot to be in (especially in an industry that relies so heavily on long lead times).

It strikes me that the core issue is your contract’s renewal window (3-6 months) doesn't match your industry's booking cycle (18+ months). This is resulting in a bit of a deadlock. E.g., you will understandably be reluctant to renew the franchise agreement with an empty diary, but you can’t fill the diary without renewing the franchise agreement.

While your contract may not explicitly allow this 21-month restriction, the franchisor is likely acting out of 'brand protection' fear (e.g., they are concerned about stranded customers if you won't be around to fulfil the bookings because you choose not to renew the franchise agreement). The key to resolving this without a legal battle is to break the deadlock as soon as possible.

If you have the right to renew the franchise agreement, and if you wish to exercise that right, I would seek to have the renewal conversations with the franchisor sooner rather than later. I would also take the opportunity to ensure that the renewal provisions in any new/restated franchise agreement better align with your industry’s booking cycle to prevent this issue recurring.

Franchise agreements are complex documents and the 'reasonableness' of actions taken by a franchisor often depend on the specific wording of the franchise agreement in question as well as the nature of the industry to which the franchise agreement relates. What I've set out above is therefore provided for information purposes only and it is not intended to constitute legal or professional advice.

Clausetwo.com

Thank you for your helpful reply. We have asked her to discuss renewal now but she is refusing, we believe she doesn’t want us to renew , we have now instructed a solicitor as we are at a loss of what to do next.

 

[The Resolver]

Thank you for your helpful reply. We have asked her to discuss renewal now but she is refusing, we believe she doesn’t want us to renew , we have now instructed a solicitor as we are at a loss of what to do next.

If the franchise is registered with the British Franchise Association (search here - note there are 4 different levels of membership so be sure to search all) then this will give you leverage in negotiations since they require compliance by their members with the European Code of Ethics for Franchising as extended by the BFA. The latter contains:-

"7. Contract Renewal. The basis for contract renewal should take into account the length of the original term, the extent to which the contract empowers the Franchisor to require investments from the Franchisee for refurbishment or renovation, and the extent to which the Franchisor may vary the terms of a contract on renewal. The overriding objective is to ensure that the Franchisee has the opportunity to recover their Franchise investment (my emphasis) ."

Other clauses in the European Code will have impact.

As I said if you send me a copy of the Franchise Agreement I can advise in more detail. Clearly placing your request within the framework of the European Code as extended by the BFA and thus putting refusal to allow renewal when there is no reason to not renew (such as Franchisee breach) as a breach is an important way to negotiate a renewal and indeed of creating clarity of your renewal rights within the Agreement.