Unlike most things, when you buy a franchise, you do not own it permanently. Sooner or later, your contractual relationship with the franchisor will come to an end. When this happens, you will be subject to various post-expiration contractual requirements, and, depending on the circumstances, you could potentially face other post-expiration risks as well.
What To Expect When Your Franchise Agreement Expires
So, what should you expect when your franchise agreement expires? Typically, former franchisees will need to address the following:
1. De-Branding the Business
When your franchise agreement expires, you will need to completely de-brand your business location and all business assets. This applies to retail stores and vehicles, and you will likely need to return any branded marketing materials to the franchisor as well. Franchisors often swiftly enforce former franchisees’ de-branding requirements, and they will not hesitate to pursue legal remedies against “holdover” franchisees.
2. Complying with Non-Competition and Non-Solicitation Obligations
As a former franchisee, you will need to strictly comply with your franchise agreement’s non-competition and non-solicitation covenants (assuming they are legally enforceable). Most likely, this means that you will not be able to operate a competing independent business from your former location, and you will not be able to contact your franchise’s former customers about your new business endeavors.
3. Complying with Confidentiality Obligations
As a former franchisee, you will also need to strictly comply with your franchise agreement’s confidentiality obligations. While former franchisees can discuss their experience generally, post-expiration confidentiality obligations generally prohibit former franchisees from discussing any proprietary aspects of the franchise system.
4. Dealing with Your Franchisor
Even once your franchise agreement expires, this does not necessarily mean that you will be done dealing with your franchisor. In addition to enforcing your de-branding, non-competition, non-solicitation and confidentiality obligations, your franchisor could choose to pursue legal action to enforce any of your in-term obligations as well. For example, if you fell behind on your royalty payments or marketing fund contributions at the end of the term, this likely is not an issue that you can expect to go away.
5. Walking Away
Many former franchisees are left with an unexpected feeling of emptiness when the term of their franchise ends. Unlike building an independent business, when you build a franchised outlet, your business always has a horizon. Once your franchise agreement expires, that’s it. That’s the end. At this point, you have the experience you gained as a franchisee, but you no longer have a business that you can operate—or sell. As a result, it is critical to think about your exit strategy in advance and to make sure you renew your franchise if you want to try to sell rather than simply letting your rights expire.
Contact National Franchise Attorney Jeffrey M. Goldstein
Do you have questions about your legal rights, options or obligations at the end of your franchise agreement? If so, we invite you to get in touch. To speak with attorney Jeffrey M. Goldstein in confidence, please call 202-293-3947 or request a free and confidential consultation online today.
