Contract Review- comment on [franchise agreement.] - A Legal view

Whereas Franchise Agreement is a one-sided, usually -non-negotiable- Contract that favors the Franchisor. Not to mention the terms prescribing strict adherence to the operation manual or non-compete obligations, the Franchisor’s rights here may seem far-reaching and unfair but, they are important & justified.

In contrast, as a Franchisee or Franchisee Lawyer, you have to ensure the contract terms are reasonable and ethical. Notably, in the below terms:

• Contract Termination – The Franchisor usually has the right to terminate the Agreement for a wide range of reasons. By comparison, the Franchisee will usually have few or no rights to terminate.
• Contract Renewal - frequently be only under the Franchisor's discretion.

This means the Franchisee may incur damage and heavy losses due to the huge investments and the huge funds that have been pumped into the project, which may be supposed to take a longer period of time before it shows its benefit & impact and to recover all the investment costs spent.

Accordingly,

At least we have to add a Clause stipulated that in the case that the Franchisor refuses to renew without a reasonable and acceptable reason, and the Franchisee's activity has led to an apparent success in the growth of the Franchisor's marks or trade name, the Franchisee shall have the right of compensation for damages suffered.

Ultimately, Franchisee may be entitled to damages if the Franchise agreement contains a right to renew or extend, and the Franchisor unjustly refuse to renew or extend the Franchise agreement in breach of its good faith and fair dealing, although that required factual analyses.

Or if the Franchisor terminates this agreement at an inappropriate time or unlawful reason or for some reason which beyond the control of the Franchisee, the Franchisor shall compensate the Franchisee to mitigate any losses resulted out from the early termination.

Fatma Alsebai

Legal counsel