As discussed in a recent article published by Nation’s Restaurant News (NLN), some franchisors have begun offering financial relief packages to their franchisees during the COVID-19 crisis. According to NLN, major restaurant franchisors including Yum Brands (KFC, Pizza Hut and Taco Bell), Subway, McDonald’s, Chick-fil-A and Qdoba are offering relief ranging from, “deferring all 2020 capital obligations for remodels and new unit development through the end of this year,” to deferral of royalty and rent payment obligations.
These relief packages come as these (and other) franchisors are requiring franchisors to severely limit their operations in order to help combat the spread of the novel coronavirus. In many franchise systems, franchisees have the option to implement social distancing and other safety protocols consistent with local practices as well. Regardless of the impetus, many franchisees are struggling as a result of the economic impacts of COVID-19, and this makes financial relief packages an attractive option for franchisees to whom they are available.
Do Franchisor Relief Packages Come with Strings Attached?
Before accepting financial relief packages from their franchisors, however, franchisees need to make sure that the relief being offered does not come with strings attached. Or, if it does come with strings attached, then franchisees need to know what these strings are, and they need to decide if the associated costs and risks are worth it. If royalty payments are being deferred, are they being deferred with interest? Will past-due royalties eventually be due in a lump sum; and, if so, when? If you cannot pay when the time comes, will have you effectively consented to the termination of your franchise agreement?
We don’t know what terms the restaurant franchisors discussed in the NLN article are offering; and, according to the article, at least one of the franchisors declined to comment when asked for details about its financial relief package. But, in general, franchisors tend to seize on opportunities to exert additional control over their franchisees, so we won’t be surprised to see coronavirus relief offerings accompanied by fairly strict and franchisor-friendly terms.
What Should You Do if Your Franchisor Offers a Coronavirus Relief Package?
When major franchisors make headlines with new offerings, smaller franchisors often follow suit. As a result, franchisees in various systems may soon find their franchisors offering coronavirus relief packages. If your franchisor offers a financial relief package, here are some important questions to answer before you accept:
- Does your franchise need the financial relief being offered?
- Are other sources of financial relief available?
- If your franchisor is offering financial relief due to COVID-19, what are the terms and conditions?
Speak with National Franchisee Lawyer Jeffrey M. Goldstein
If you are considering accepting a coronavirus financial relief package from your franchisor, we encourage you to contact us first. With more than 30 years of experience exclusively representing franchisees and dealers, attorney Jeffrey M. Goldstein can help you make an informed decision. To schedule a free consultation via phone or videoconference, call 202-293-3947 or inquire online today.
