Read on to understand more about franchise closure and steps you can take to defend yourself!
Failure to take action. (Do not invest more and hope for a miracle!)
As a franchise attorney and former franchisee, I’ve seen a lot. The topic (of "closure") is generally not discussed (aka avoided), especially during the sales process with franchisors. Thus, closure planning is usually and dangerously omitted!
Far too often franchisees allow closure to occur without taking action and without having legal counsel on their side. This leads to an escalation of negative events that might be preventable or at least able to be mitigated (reduce the bad). In addition to not having a plan and being unaware of the process (and of your contractual rights), often franchisees invest additional monies with the hopes of saving their franchise business from closing. But with resources depleted, the additional investments are often scraped together from home equity lines of credit, retirement savings, and the like.
Develop your legal strategy. Know your contractual rights. Make yourself formidable. Instead of investing additional money and hoping for a sales turnaround, improve your position by investing in experienced franchise legal counsel to make your position robust. After all, the franchisor has counsel (or maybe even an entire legal team).
HYPO: You are a franchisee/owner of your own franchise business. It is now closing.
The closure is occurring before the expiration of the franchise term, say in year five on a ten-year term. The franchisor is now claiming you are in breach since you owe obligations under the franchise agreement for an addition five years‡.
But your business was not making money, and worse, it was exhausting your savings to keep it afloat.
A big undertaking, counsel for franchisee should immediately undertake to mitigate liabilities from all the various sources. This could include debt obligations, such as those additionally owed to the franchisor under the franchise agreement, loans, repayment and debt owed under the commercial lease (owed to the landlord).
Mitigating liability involves protecting your personal assets and to reduce the liabilities owed by the franchise business. The goal is to reduce what is owed and to protect your personal property, which includes things like your house and college savings. Again, this is a big process and there are many variables which can influence the outcome.
The single best course of action to take is... action. Franchise termination is a complex and difficult process, but it can be managed and improved upon. You can potentially defend yourself and you can potentially save your franchise business. But, you must take action! At Morgan & Forb, PLLC we endeavor to limit liability, create leverage, and negotiate.
Call 704-287-9093 schedule your free initial consultation with a franchise attorney at Morgan & Forb.
Craig Morgan is a business, franchise and contracts attorney and a partner at the law firm Morgan & Forb, PLLC. Licensed in North Carolina and Ohio, we serve intellectual property and franchise clients nationwide. To speak with one of our attorneys, please call (704) 287-9093 or click here. We offer the initial call at no cost to you.
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