Looking ahead: Bottlenecks at the end of the franchise agreement

Of course, everyone starts a collaboration with good courage. But sooner or later it will come to an end. Most franchise agreements are concluded for a fixed period, usually 5 years. There may be dilemmas for both the franchisee and the franchisor whether to continue or to quit.

Some of those dilemmas include the following:

• A new “stricter” (model) of the franchise agreement;
• The obligation to reinvest;
• The possibility of buying/selling the company;
• The size of the purchase/sale of the company (including goodwill);
• The inability of the franchisee to continue under another formula;

These situations are explained successively.

Changes and requirements upon renewal of the franchise agreement
For example, if the collaboration is extended, it may be discussed to what extent, for example, higher fees for the franchisee also mean more or better services from the franchisor.

In the event of a reinvestment obligation, the question arises as to what the interest is and whether reinvestment could also be done in an alternative and cheaper way.

Considerations when selling a franchise business
When choosing at the end of the franchise agreement whether or not to sell the franchise company, the question is of course whether it is possible to sell at all. For example, what if the location is not available to someone else?

Sometimes it is also the case that the franchise business is run from its own building, but the building is not offered for sale, but only the assets. The possibility of a share transaction can also be considered.

The challenges of a post-compete agreement
Finally, in this context, mention can be made of the situation in which there is a post-competition clause, as a result of which a departing franchisee cannot continue the same type of business at the relevant location for a certain period of time under his own name or another formula.

The reality of legal dilemmas in franchise agreements
The franchise agreement often contains provisions regarding these dilemmas, but reality always proves to be more difficult than anticipated. In practice, it can sometimes be difficult to break through the dilemmas. For example, a franchisor will not like to see a successful franchisee leave, lose a location or pay a high price for the franchisee’s business and find a successor franchisee who will be just as successful (and is also willing or able to pay a high price for the franchisee’s business). takeover). On the other hand, a franchisee has often put his heart and soul into the company and, for example, has made investments that have not (yet) been fully recouped.

The importance of good preparation and clear agreements
In the context of such dilemmas, accusations and subsequent disputes often arise. What matters is that both parties know in advance where they stand, what they have agreed on and what they would like from each other. A franchisee in particular does not always list the different scenarios prior to concluding the franchise agreement. This is precisely what is highly recommended.

This article also appeared on the Franchise+ website .