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Manzoor Ishani discusses the conditions surrounding the renewal of a franchise agreement and their effects on both the franchisor and franchisee
The general practice on the expiry of a franchise agreement has been for a franchisor to grant its franchisee an option to renew the franchise for a further term. Such options, however, are usually subject to various conditions with which a franchisee is required to comply, most of which don’t cause a problem. Clauses such as ‘the
However, many such options also contain an additional condition – one that is becoming a frequent bone of contention. It usually isn’t queried by a franchisee at the time of signing the franchise agreement but can cause problems at the time of renewal. This is a provision that makes any renewal conditional upon the
There is nothing illegal about such a condition but it does raise ethical questions. Franchisors argue that there may be circumstances where a franchisee has a claim against a franchisor, for example, because a franchisor and the franchisee are in dispute over sums owed to the
Such circumstances do not make for a harmonious relationship between the parties and do not bode well for the future.
clean sheet.
There is clearly some merit in this argument and therefore such a condition appears to be not unreasonable. In which case, surely ‘what is sauce for the goose is sauce for the gander’? If it is reasonable for the
Many franchisors have accepted this line of reasoning and provide for a mutual release as a pre-condition to renewal. However, there are others who do not agree because they consider the provision to be too general and therefore able to accommodate any number of unforeseen circumstances. Experience has shown that most disputes between the franchisor and franchisee are financial in nature and franchisors who do not like the mutuality aspect of such a release argue that it is not often – except in the case of a trading account where franchisees buy products from franchisors – that a franchisor has any financial obligations to a
By way of a
If franchisors are given the last word in the matter, they usually conclude the discussion by stating that if a
or her problems.
In these circumstances the
In these