So, you received a Notice of Default. Whether it came as a surprise or was a long time coming, it showed up in the mail, and now you have to deal with it. What does the Notice of Default mean for the fate of your franchise? What are your legal rights? What are your franchisor’s legal rights? What options do you have available? This article provides a brief introduction to what you need to know.

Steps to Take After Receiving a Notice of Default from Your Franchisor

If you have received a Notice of Default from your franchisor, taking these steps will help you protect your investment and avoid mistakes that could lead to unnecessary termination of your franchise:

Step No. 1: Assess the Validity of the Alleged Default

As a franchisee, your legal rights are limited. Even if your state has a franchise relationship law, if you have committed a default, you could be at risk for losing your franchise. So, the first step after receiving a Notice of Default is to assess the validity of your franchisor’s allegations. Have you violated your franchise agreement (i.e. by not paying royalties)? Is there room for interpretation? Or, are your franchisor’s allegations entirely unsubstantiated?

Step No. 2: Avoid a Knee-Jerk Response

Regardless of whether you believe the Notice of Default is valid, you need to avoid a knee-jerk response. Too often, disgruntled franchisees attempt to retaliate or go public with their grievances on social media. In order to avoid an unnecessary dispute, you should consider your options (and their potential ramifications) carefully, and make a smart decision with your long-term best interests in mind.

Step No. 3: Assess the Risks of Termination

If your Notice of Default were to lead to termination, what consequences would you endure? Would you be subject to competitive restrictions? What about an obligation to pay “lost future royalties”? While finding a way to salvage your relationship with your franchisor may seem unbearable, the consequences of losing your franchise could be far more substantial.

Step No. 4: Determine Whether You Have Any Claims Against Your Franchisor

In some cases, the best defense is a good offense. If you have grounds to pursue a lawsuit against your franchisor, asserting your rights may afford the leverage you need to achieve a favorable resolution.

Step No. 5: Respond to the Notice Appropriately

Once you have carefully weighed your options, then you can craft an appropriate response to your Notice of Default. What is “appropriate” will depend upon the particular legal and factual issues involved, and crafting a response to a Notice of Default is a task best handled by an experienced franchise litigation attorney.

Contact National Franchise Litigation Attorney Jeffrey M. Goldstein

Have you received a Notice of Default from your franchisor? If so, franchise litigation attorney Jeffrey M. Goldstein can help you choose the best path forward. To get started with a free and confidential consultation, please call (202) 293-3947 or inquire online today.