The termination or cancellation of a New York franchise relationship requires planning, a thorough understanding of your particular New York franchise agreement and procedural formalities. Typically, it is advisable to consult with your franchise lawyer.
New York Franchise Terminations (Franchisee Considerations)
For example, preparation should begin before signing a franchise agreement by a New York franchisee. Before signing, a would-be franchisee should consider the written terms outlining the right to terminate the franchise agreement. Other clauses, of course, should be reviewed. This post, only, addresses one issue of many that a franchisee should consider.
Typically, a franchisor shall lay out several conditions it would consider to be breaches of the franchise agreement that trigger termination. These conditions will not afford an opportunity for either party to cure or correct the specific condition. These incurable breaches are, typically, material breaches of franchise agreement and, often, New York law. In some cases, a successful challenge to a NY court may be advisable for franchisees that believe that the alleged breach never occurred or the alleged breach is not a “material” breach.
Examples of triggering events that are incurable include:
- failing to fulfill minimum purchase requirements;
- violation of specific laws;
- misuse of the franchisor’s intellectual property;
- unauthorized sales; and
- the violation of ancillary agreements, such as a non-compete agreements.
New York Franchise Terminations (Franchisor Considerations)
Franchisors operating in New York must properly register a Franchise Disclosure Document with the Office of the Attorney General prior to execution and disclosure of the franchise agreement. If you have no registered you franchise agreement in New York, please reconsider terminating the agreement and contact a New York franchise lawyer immediately.
If you have a registered franchise agreement in New York, 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 exchanged giving notice of the triggering event and the time period to cure. Notices should include an admonition for continued compliance with all contracted obligations. These formalities are crucial, as a dispute over termination, often, leads to litigation.
If the clauses of the franchise agreement governing termination have not been triggered, but the franchisee may just “want out” of an unexpired franchise agreement, then a franchisee should plan an “exit plan” before signing the agreement. As discussed in previous blog posts, many franchisors have structured 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 NY 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 a New York franchise attorney can offer. We highly recommend seeking out legal advice from experienced and proactive franchise attorneys who are experienced in managing such relationships.
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- Buy-Sell Agreements for Multi-owner Businesses in New York: New York Buyout Agreement Basics
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