Renewal Termination And Transfer Of Franchise Agreement

Foreign franchisors are generally not treated differently from domestic franchisors. Foreign franchisors must comply with disclosure obligations under the FTC rule as well as any registration or disclosure laws or the relationship (or both) enacted by states whose laws apply to a transaction or relationship (or both). For foreign franchisors, there is a practical difficulty in that the franchisor`s annual accounts must be included in the publication document and these financial statements must be prepared in accordance with accounting standards generally accepted in the United States or established in a manner approved by the United States Securities and Exchange Commission. That is why many foreign companies form a U.S. company that offers deductibles in the U.S. and has established audited annual accounts based on the U.S. model and included it in the disclosure document. However, the annual accounts of foreign parent companies must also be included in the disclosure document if the parent company undertakes to meet obligations after the sale for the franchisor, or where the parent company guarantees the franchisor`s obligations arising from its franchise agreements. However, if the aspiring franchisor meets the criteria, the selling franchisees are able to challenge the franchisor`s decision to refuse. In Richter v. Dairy Queen of Southern Arizona, Inc.17, the Tribunal rejected the franchisor`s assertion that its refusal to authorize a transfer was legally appropriate, given that the Tribunal found that the proposed franchisees were serious, experienced and had a good record of the performance of the undertakings. A court`s finding that refusal was a pretext is always devastating for the franchisor.

In Home Repair Inc. v. Paul W. Davis Systems18, a proposed franchise salesperson argued that the franchisor`s refusal to accept a transfer was motivated by a racist animus toward the owner of an African-American purchaser. The Tribunal found no direct link between the racist allegations and the refusal to transfer; however, he considered the ”racinic comments and racial nuances” of the franchisor … in the disputed [franchised] areas” and found that there was ”a compelling mosaic that created a triple question of whether [the franchisor] had deliberately discriminated against [the franchisee] because of the owner`s skin colour.” The court therefore found sufficient evidence to defeat the franchisor`s request for a summary decision on the Confederation`s civil rights action. Most franchise agreements have conditions that the franchisee must meet to allow the franchisor to renew the franchise agreement. In addition, the relations laws of some states require a good reason not to be reconstituted by the franchisor. Some states have termination obligations regarding the non-renewal of the franchise agreement (for example. (b) the requirement for the franchisor to inform the franchisee of the franchisor`s intention not to renew at least 180 days before the franchise agreement expires).