However, the franchisee may raise defenses to attempt to excuse its non-performance of its financial obligations even though these defenses are not usually well received by courts. In this circumstance, the franchisee typically will not have strong grounds to contest the default and termination. If the franchisee does not cure the monetary breach within the applicable cure period, the franchise agreement will terminate. failure to pay royalties, under the agreement.

Generally, a material breach of the franchise agreement will occur when the franchisee commits a monetary breach, e.g.

The first question that counsel should consider with the franchisor is whether the breach is a material breach under the franchise agreement. The franchisee will seek to have state statutes, if applicable, or other common law defenses protect it from actions by the franchisor. The franchisor must consider the grounds for default under the franchise agreement, as well as applicable state law in determining whether to default the franchisee. This is so because the declaration of a default may be the first step to ending the relationship between the franchisor and the franchisee. Whether the franchisor is going to issue a default is a serious decision that should only be made after considering several legal issues.

Grounds for Default Under the Franchise Agreement All of these issues should be considered prior to sending a default letter to a franchisee. Further, declaring a default may implicate special business considerations, including the impact on the system’s other franchisees, the impact on customers, and the impact on the franchisor itself. In addition to reviewing the franchise agreement between the franchisor and the franchisee, a determination must be made as to whether state franchise relationship, business opportunity, termination or other relevant statutes or case law apply. While a franchisor may have the legal right to default a franchisee, there are many issues that a franchisor should consider prior to determining whether to send out a default letter.ĭeciding to default a franchise is a serious step, therefore, it’s important that the franchisor remember that this process may ultimately lead to the termination of the parties’ relationship. Thus, the determination of whether to declare the franchisee in default under the franchise agreement must be given serious consideration.

Letter of default on lease