Unlock the Power of Online Signature Lawfulness for Franchise Contract in Canada

How to eSign a document: online signature lawfulness for Franchise Contract in Canada

welcome back to the Rydell Law Firm Odyssey Channel we've covered a lot in the past on some different franchise topics joining a franchise understanding some parts of your franchise agreement today I want to chat about how to exit your franchise agreement how to leave your franchise system it is not my favorite topic I'll be honest with you but um in the uncertain economy lately it is something that has been coming up in our firm we've had to to help some of our clients exit their franchise agreements and work through that process and we're doing so right now so I thought I'd do a video about it chat a little bit about um what that looks like and some of the things you got to think about and be aware of and prepare yourself for that process Now notes that I we just did a video recently with my good friend attorney Doug Luther he's a franchise attorney in California and uh watch that video it's really interesting because he has an extensive background in-house with a franchisor and obviously I represent franchise as well in franchisees but I'm I'm I've never been in-house so there's a whole different calculation there between some of the stuff that he's done and where we're coming from and helping our clients so it's really interesting we had a really great chat I'll link to it in the description here but check that out so sorry about the exit process how to actually franchise agreement okay so the first thing that you really got to understand is that there is no free out in your franchise agreement uh even if even in a situation where maybe the franchisor is doing something incorrectly or doing something that is uh and wrong in the franchise agreement and putting putting it in default would be the term they let very likely have the rights to cure that default those illegal terms and what that means is they have the right to fix the problem before you cancel the contrary or terminate the contract and walk away they are going to have the right to fix whatever that issue is that you have and make it right to you so even if there is a problem with the franchisor you very likely don't have a get out of jail free card you're gonna have to take steps to figure out what the process for the exit is so that being said there there are several options in exiting ideally number one is a franchise sale which means that you find a buyer for your business who somebody wants to be a franchisee for them to step in and purchase your unit and to start operating the unit as a franchisee instead of you that is the number one option that is best for you as a franchisee 100 because you get compensated maybe it's not what you think the conversation will be or should be but you get compensated for your ownership stake and the operations that you've built in that unit um the other excuse me the other options for a franchise exit do not compensate you so First Option best option is a sale the second option is a negotiated exit with the franchisor so a negotiated exit with a franchisor means that you go to the franchise or tell them this is not working out explaining the rationale the reasoning behind that and then discussing with them what it will take to exit friendly right amiably uh in a friend in a friendly manner that you shake hands and part ways that could be as simple as turning over the unit probably without compensation right depending on depending on the system and some of the terms in the branch underground uh to the franchisor or to another approved operator and just walking away cleanly maybe the exit requires liquidated damages which is an exit fee so now you're you're discussing what that exit fee is and and how to um how to make that reasonable for you as you exit usually it's it's five figures or more I've seen some franchisors kind of go way overboard on a on a franchisee who is uh failing financially and come back with a six-figure liquidated damages fee and those are not fun to negotiate because it's like they're they're in a whole different solar system than we are in that in that conversation um so uh so so yeah that's the negotiated exit is working out those terms it is almost always going to involve a compensation from the franchisee to the franchisor so some type of monetary payment or giving up some of the inventory or equipment or the operations without compensation to the franchisor so just prepare yourself if you're in that situation even at a financial uh situation where you have to close because you're running out of funds right cash flow negative or something uh it there's very likely going to be some damages on the tail end of that that we'll have to negotiate with the franchisor so a negotiated exit is the second option last option uh of the the three most typical is an abandonment this one is absolutely not favored we try to discourage our clients from this as much as we can because of the potential risks that come with an abandonment of the business so an abandonment of the business is exactly that it means you are walking away from the business closing the door forever and just walking away without a care you don't care what happens to it you are not putting any money into it you're not opening the door you're not operating you are walking away and you are done so when that happens there are a lot of things behind the scenes that happens the landlord obviously wants to get paid rent so they're going to um take the property back right take that lease that you have back and probably the equipment the inventory all the the things that you have inside the property they're going to take they're going to use that to compensate themselves for the for the rent that you owe them or something um the uh the other the other part of the other party there excuse me is the franchisor now the franchisor obviously will be owed maybe some franchise fees or other things if there are damages actual damage so things like going and cleaning up your system going and taking down the signage or taking back the Branded Goods whatever that is um or trademarked Goods they also may have liquidated damage like we mentioned so they're going to have significant potential claims to you as a franchisor and that that payer can can go from five figures up to six figures uh can be huge so behind the scenes that once you walk away those two parties are looking at their damages looking at the work that they have to do to clean up the mess and they are going to be eyeing you as either the franchisee the franchisee entity or as a personal guarantor to figure out who's going to pay them right who's going to compensate them for having to go in and clean up that mess and very often it's the personal personal guarantor writes you as the owner of the franchise entity who is liable for that who's going to have potential losses that you're going to have to pay them so it's it's really a very risky option to take now I won't say that we've never done that with clients because sometimes that is the only reasonable option on the table if we have an unreasonable franchisor or frankly they're out of money if there is nothing left in the tank and they're they were about to file bankruptcy or considering a bankruptcy it just doesn't make sense to pay liquidate damages or deal with things um or you know we usually try to negotiate with a franchise orbit if those negotiations break down then obviously we have to consider the abandonment because that's what's best for a client in mitigating their financial losses and I will say that that it is common after an abandonment or soon after an abandonment that a bankruptcy filing comes soon after Now Magazine filing is not it's not the end of the world right it is not something that is good obviously but it is something that will help you in the future right you can escape those debts it's there for a reason and if you are a entrepreneur a business owner who had a bad break or there was a recession business bankruptcy is there for a reason it's there to help you escape those debts and to reset your life right so use it and that's we we counsel clients on we don't do bankruptcy filings but we we work with attorneys who do and we will counsel you through those decisions and connect you with those right people um and attorneys to do that so those are those are the three options um it's something that's going to be really we're going to be discussing a lot in the near future um because I already see an uptick in franchise exits with the uncertainty in the economy um and I think later we'll probably do a little deeper dive in how to negotiate uh though that exit with the franchise order I just wanted to lay out the process and really your three options when you're walking away from a franchise whether that's through a mutual termination a negotiated exit or an abandonment or a sale just understand that if you are having to rush the process and you are in a position where your cash flow is already drained it's going to be much more difficult for you to reach terms that are really weather acceptable or or are reasonable for you the faster you have to go the more you're going to have to sacrifice so if you're in a position where you see that tough times are coming in your cash is starting to turn red or getting close to it I encourage you to look at that process you know as soon as possible and start planning that out three four five months in advance so that you don't get pushed up against the wall have to do a short sale or you have to go and do an abandonment or you have to go and give the franchisor a bunch of money because you can't keep the doors open any longer right and you're cutting your losses so something to think about plan ahead try to try not to back yourself into a corner give us a call if we can help you we talk through this process with folks quite often lately again it's not my favorite conversation to have because it's not fun right it's a lot of fun starting a business and helping people be uh the best business it can be and be successful whenever that turns South though we're there to help you again that that's our job so we're going to be there for you it's um it's tough but that's what we do we make your lives easier as easy as possible and understanding the franchise agreement and negotiating with the franchisor on your behalf and trying to make that exit reasonable for your circumstances so if we can help you do that reach out to Rydell Law Firm we'd love to chat with you and counsel you on on those difficult decisions and be there to guide you through it so we'll talk to you next time