Failure to remit these franchise fees on time can force the franchisor to close a franchise on an owner. Again, if you fail to do so more than two times in a period of 12 months, the franchisor can terminate the agreement. Insolvency (of the Franchisee)
Full Answer
Can a franchisor legally close a franchise?
If the issue becomes persistent, the franchisor might legally close a franchise, as well as terminate the franchise agreement. If the franchisee discloses wrong information (ie. net worth), the franchisor has the right to terminate the franchise agreement. In fact, they can pursue further legal recourse to recoup any money lost in the process.
What happens if a franchisor fails to deliver a disclosure document?
Under Ontario’s Arthur Wishart Act (Franchise Disclosure), 2000, a franchisor that fails to deliver a disclosure document as required under the statute and its applicable franchise regulation entitles the franchisee to terminate all franchise contracts and receive compensation for all his or her losses.
How can a franchisee get out of trouble?
The franchisee can get out of trouble by complying with curing requirements set out in the franchise agreement and, by doing that, avoid being terminated. Non-curable defaults refer to defaults of the franchisee which he or she cannot cure.
What happens if you don’t pay your franchise fees?
This is the royalty fee that the franchisee has to pay the parent company monthly, quarterly or annually as agreed upon. Failure to remit these franchise fees on time can force the franchisor to close a franchise on an owner. Again, if you fail to do so more than two times in a period of 12 months, the franchisor can terminate the agreement.
What entity can close a franchise?
Some examples are the health department, and another, the Franchisor. If either of those inspections fail, wither entity could close the unit.
How long does a franchise lease last?
When you enter into a Lease Agreement or a Franchise Agreement, they aren’t in perpetuity. They expire and in most cases, that’s in 10 years from the date you executed the agreement. In the case of a Franchise Agreement, the Franchisor will evaluate whether they want to renew your agreement.
How Do Unit Closure Reflect on the Brand?
Overall store closings are not favorable, but they happen. The important thing to find out is how may have closed and why.
What is the metric for store closings?
At the beginning of this post, I mentioned a metric that is tied to store closings. That metric is called Continuity Rate.
Why do stores close?
Store closing can be a symptom of a weak operations team. In a franchise this can really hurt the brand. If there is inadequate field support, then a downward trend in sales has the tendency to spiral.
What happens if there are too many players in a geographic area?
If there are too many players in a geographic area, the niche could be saturated. The customer will have an array of choices and, assuming all your competitors are giving it their all, sales volumes will likely be split between you and all your competitors.
What are some examples of a product or service that is less in demand?
A classic example of this circumstance is Blockbuster. The product or service is less in demand or there may be an alternative product in the market that is cheaper/cooler/more interesting/has better marketing.
