The New York Law Blog: Important Legal Considerations When Terminating A Franchise Agreement In New York
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Monday, March 27, 2017

Important Legal Considerations When Terminating A Franchise Agreement In New York

NY Franchise Law, Business in NY
The termination or cancellation of a franchise relationship requires planning, a thorough understanding of your particular franchise agreement and, in certain instances procedural steps that must be followed.

Preparation begin before signing a franchise agreement. Before signing, a would-be franchisee should reconsider the written terms outlining your right to terminate the franchise agreement. Typically, a franchisor will lay out several conditions it would consider to be breaches of the agreement that trigger termination if committed. These conditions will not afford an opportunity for either party to cure or correct the condition. Thus, when you and your attorney review that section dealing with termination‚ you should both identify these circumstances.

Additionally, you and your attorney should identify conditions that may result in termination unless you cure them. These conditions typically include a clear time period to cure and correct that would avoid termination.

Examples of triggering events that may or may not be curable are: :
  • failing to fulfill minimum purchase requirements;
  • misuse of the franchisor's intellectual property;
  • unauthorized sales; and
  • the violation of ancillary agreements, such as a non-compete agreement.
When reassessing the terms of your franchise agreement‚ you may want to get the help of an experienced New York franchise lawyer. A New York franchise lawyer can review the terms of your existing agreement‚ and identify opportunities for improvement.

Also, it helps for franchisees to understand what New York franchise laws as they relate to termination. Franchisors operating in New York  must properly register the Franchise Disclosure Document with the Office of the Attorney General prior to execution and disclosure of the franchise agreement that you are canceling. Next, you should determine what, if any, triggering event occurred and what period to cure may or may not exist. If the triggering event is curable, formal correspondence should be exchanges giving notice of the triggering event and the time period to cure, if any, and the necessary curable action. Notices should also include an admonition for continued compliance with all contracted obligations during the notification period. These formalities are crucial, as a dispute over termination could lead to litigation later on.

If the clauses of the franchise agreement governing termination have not been triggered, but the franchisee may just "want out"of an un-expired franchise agreement, then a franchisee should plan an "exit plan" before signing the agreement. As discussed in previous blogs, many franchisors have structure succession plans that will help franchisees avoid future liability, or will even buy-out franchisees under terms set in the franchise agreement. Additionally, if the exiting franchisee wants to run a competing "non-franchised" business, you and your attorney should take a hard look at any non-compete agreements.

As you can see, managing franchise relationships can be highly complex and require advance planning and foresight that an attorney can offer. We highly recommend seeking out legal advice from knowledgeable attorneys who are experienced in managing such relationships.
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