Partner Andrew Sherman and Associate Sam Wolf Explain ‘Renewal’ in Franchising for Westlaw Today

Partner Andrew J. Sherman and associate Sam Wolf co-authored an article for Thomson Reuters’ Westlaw Today exploring renewal, termination and nonrenewal of franchise agreements.

In the Dec. 11 article, they discussed how the common understanding of renewal implies the continuation of something that is already in existence, which often means the extension of an existing agreement as opposed to the execution of a new agreement on materially different terms.

However, 18 U.S. jurisdictions have adopted statutes regulating franchise renewals, which adds a layer that may add terms the parties never negotiated or that contradict the existing terms, they noted.

“The divide between the public understanding of ‘renewal’ and the industry practice is likely attributable in part to the economics of franchising,” they wrote. “[R]enewal for franchisors is an opportunity to modernize its system and wipe the slate clean by conditioning renewal on a general release in favor of the franchisor and refurbishment/modernization upgrades.”

Most state franchise laws do not provide a right of renewal, they wrote. In certain states with franchise relationship laws, termination and nonrenewal are the same thing, but in others they are not treated the same, they observed.

“At the expiration of the term, the franchisee who cannot continue to operate the franchise may find that all the equity of the franchise may arrogate to the franchisor and the franchisee is barred from working in a similar type of business,” they wrote. “Sunk costs and non-compete provisions may leave the franchisee little choice but to ‘renew’ the franchise agreement, leaving the franchisee vulnerable to one-sided provisions that they cannot simply walk away from.”

Read the full article here.