Alternatives to Termination: Effective Means of Facilitating Compliance or Merely Delaying the Inevitable?

[...]when a franchisee is in default of performance standards, and fails to cure its default, a reduction in the exclusive territory can better align the territory with the franchisee's demonstrated capabilities in operating the franchised business, while creating opportunities to bring one or...

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Bibliographic Details
Published in:Franchise law journal 2024-09, Vol.43 (3), p.269-286
Main Authors: Mcintosh, Scott, Plakon, Emily
Format: Article
Language:English
Subjects:
Acquisitions and mergers
Agreements
Case law
Compliance
Contracts
Default
Default (Law)
Discharge of contracts
Franchisees
Franchises
Laws, regulations and rules
Management
Notice (Law)
Performance (Law)
Provisions
Remedies
Terminations
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Summary:[...]when a franchisee is in default of performance standards, and fails to cure its default, a reduction in the exclusive territory can better align the territory with the franchisee's demonstrated capabilities in operating the franchised business, while creating opportunities to bring one or more operators into the area to maximize the territory's potential and to best retain customers in that area for the franchised system, rather than creating opportunities for competitors in the territory.4 The changes to the exclusive territory may be permanent. [...]exercising such a provision enhances the likelihood of a good customer experience and improves prospects for repeat business. [...]the exercise of this provision (and even the existence of this type of provision in the franchise agreement) provides an incentive for the franchisee to comply with the system and to promptly cure any defaults.7 Financial mechanisms are another type of provision contained in franchise agreements that can incentivize compliance.8 Franchisees that are in default, particularly those that repeatedly default under their agreements, often command a disproportionate amount of the franchisor's time, effort, and resources as the franchisor takes steps to preserve and enhance the system's goodwill. [...]these types of provisions may provide that the franchisee will pay a certain fee and/or will reimburse the franchisor for any attorneys' fees or other costs that it incurs in connection with securing the franchisee's compliance.
ISSN:8756-7962
2163-2154