Resigning from a franchise

[Rob McKenzie]

A few years ago I bought a franchise. Now I am looking to sell up due to ill health. The problem is that I have a potential buyer who wants to buy my business as a bolt on to his existing businesses and not as part of the franchise.

The franchise agreement does not allow a franchisee to resign from the organisation. It states that only the franchisor is allowed to terminate the agreement and that there is no provision for the franchisee to terminate it.

I have given the franchise several months to find a buyer but they have been unable to do so and I would like to sell to anyone who can make a sensible offer.

I am completely unsure of what ramifications there would be if I was to sell to the interested party who would not be part of the franchise. It is an American company which is governed by the laws of the US.

 

[ethical PR]

I can't imagine under your agreement it allows you to sell your business outside of the franchise?

Have you spoken to a commercial lawyer with experiences of franchises ? this should be your starting point.

Why not speak to the lawyer you used when you bought the franchise?

 

[Rob McKenzie]

I blundered into this with my eyes shut. I believed what the franchise area manager and other franchise personnel told me only to find out that I had been misled and lied to after I took over the existing territory. Basically I got stitched up between the previous owner and the franchise.

One of the franchise directors told me that they would not change one word of the agreement and so I never took legal advice as, stupidly, I assumed that there was no need as nothing could be changed.

I made so many school boy errors when buying this franchise that I bitterly regret ever buying it in the first place. The franchisor has made more money out of it than I have but I have been doing all the hard work.

It seems that the franchisor completely owns the business even in death or ill health.

 

[The Byre]

If you are looking for a really funky and complicated set of laws, US franchise laws are your baby. Not only is the whole area of franchising governed by the FTC, but each and every state has a different set of laws added to the FTC rules and laws. Add to that, a great deal will depend on the contract you signed.

The franchise agreement does not allow a franchisee to resign from the organisation. It states that only the franchisor is allowed to terminate the agreement and that there is no provision for the franchisee to terminate it.

That has to be the most one-sided arrangement I have ever seen and I doubt that the state you are in will allow for such a situation. I certainly sounds as if it falls foul of the FTC's so-called 'Franchise Rule' covering unfair practices and the duties of the franchisor for fairness and complete disclosure.

You really have no alternative, but to consult with a commercial lawyer in your state.

P.S. There is a good chance that the whole agreement contravenes the FTC rules on franchises and is possibly null and void, if it is as one-sided as you say.

 

[Rob McKenzie]

I am in the UK and the agreement seems tighter than 2 coats of paint and I'm not even a lawyer. Everything is in the franchisor's favour. Seems that they even have the right to buy the franchise back at 75% of market value and they own everything from customer details to having to have the phone number and email addresses rerouted to themselves.

I quote "this franchise agreement may be terminated only by the franchisor and no provision is made in this agreement for the unilateral termination of this agreement by the franchisee".

Governed by the laws of England and Wales.

 

[The Resolver]

Although a US franchise are they members of the British Franchise Association o any similar in Europe? If so they will likely be required to comply with the European Code of Ethics in Franchising which requires the agreement to contain provisions for termination and resale.

Are you personally the franchisee or a limited company you have formed, If so that may give you other options.

If you have evidence fo misrepresentation that also gives you options

 

[Bob]

It appears to be a UK franchise

 

[Rob McKenzie]

Just checked and they are a member.

I am happy to sell to someone that will remain part of their network but if I get an offer from this other company who do not want to be part of the franchise then I need to be able to sell up and move on without potential court action hanging over my head.

 

[The Resolver]

hah - E&W law! Our posts crossed.

In that case, as the OP refers to misrepresentation, then he may have a contractual claim and also pursue breach of The Business Protection from Misleading Marketing Regulations 2008

 

[The Resolver]

Given the potential damage to the rest of their franchise network of an adverse court ruling/kick out by BFA, with such being far more costly than just letting you leave, this should be capable of being resolved through mediation.

 

[Rob McKenzie]

Basically I was lead to believe that the figures were much healthier than they were. Unfortunately everything was verbal.

The previous owner misled me regarding figures achieved and when I discussed them with the franchise area manager he said that the figures were correct so I went ahead. Nothing was in writing though.

I should be used as a model of how to do everything wrong. Hindsight is a great thing and I can't believe I walked blind into this.