You own a franchise, and everything is going reasonably well. You have begun to turn a profit after a couple of years, you are getting repeat business, and you are finally starting to think that this could be something you could do successfully for a long time.
Then, you get a site visit from your franchisor. It seems like it goes well, but a short time later you receive a notice identifying all of the ways that you are out of compliance with the franchisor’s current system standards, and stating that you need to make numerous costly updates in order to avoid defaulting under your franchise agreement. You make a call to another franchisee a few ZIP codes over, and she says that her outlet is a lot older than yours, and she’s sure her business is far more “outdated” than yours.
So, what gives?
When Franchisors’ System Standards Are Not Uniform
As it turns out, there are a number of reasons why franchisors may choose to treat different franchisees differently. Despite franchisees’ expectations (and, in some cases, franchisors’ representations) that system standards will be uniformly enforced, it is not at all unusual for some franchisees to face more-onerous obligations than others. Here are just some of the reasons why:
- Different Franchise Agreements – When trying to figure out why your franchisor is treating you and other franchisees differently, one of the first questions to ask is: When did each of you sign your franchise agreements? Franchisors frequently update their agreements to grant themselves additional rights and protections, and it may simply be that your franchisor has certain rights against you that it does not have against a more-established franchisee.
- Negotiated Agreement Terms – Another option is that your neighboring franchisee may have negotiated more favorable terms. For example, maybe she was able to get the franchisor to agree not to require updates over a specific dollar-amount threshold for a period of years or during the initial term of her franchise.
- Geographic or Demographic Differences – Franchisors will frequently apply different standards to franchisees serving different geographic or demographic areas. For example, a franchisee located in an urban center where surrounding businesses are constantly adapting to consumer preferences may need to make updates more frequently than an outlet in a more remote suburban or rural area.
- Past Compliance Issues – If you have had past compliance issues, your franchisor may be more concerned with keeping you current while other franchisees may be less-carefully scrutinized.
- Intent to Terminate – Finally, if your franchisor is determined to get you out of the system, it may be using its broad rights under your franchise agreement to create an excuse to hold you in default. If you fail to make mandatory updates or renovations (even if you are financially unable to do so), your franchisor may use this as grounds to terminate your franchise.
Are You Dealing with an Unfair Franchisor? Schedule a Free Consultation at the Goldstein Law Firm
If you need legal assistance dealing with a franchise compliance issue, franchise lawyer Jeffrey M. Goldstein is here to help. For a free, confidential consultation, call (202) 293-3947 or contact the Goldstein Law Firm online today.
