New Year’s Resolution for Franchisors: Strengthen Your Franchise Agreement (Part A)

The New Year is upon us, and if you are a franchisor in New York, or elsewhere for that matter, the shifting of the calendar is a good time to reassess your critical business matters, such as your franchise agreement. By looking over the terms of your franchise agreement, you can eliminate any shortcomings that you find, which may help to strengthen the operations of your entire franchise system.

If you need help reassessing your franchise agreement, you can get the professional assistance of a New York franchise lawyer.

Assuring Your Security Interests

As a franchisor, you may establish security interests in the assets of franchisees. For instance, if a franchisee defaults on their payments or obligations, you can maintain the right to claim possession of certain business assets. This may include the furniture, fixtures, and equipment used to operate the franchise.

Maintaining security interests can help protect your franchise business. It will help to ensure that obligations are met, and recover your losses if a franchisee fails to meet those obligations. Your security interests may be written into the terms of your franchise agreement. You may also secure them with a recorded UCC financing statement (UCC-1).

Collateral Assignment of Lease

As a franchisor, you must protect yourself against the default of your franchisee's property leases. If a franchisee defaults on the lease for its business premises, you should maintain the rights (but not the obligation) to:

• assume the lease, without having to pay any consideration to the landlord;
• cure any defaults; or
• replenish the security deposit.

To maintain such rights, you should require a collateral assignment of lease from each of your franchisees. A collateral assignment of lease can be entered into with every lease. This will allow you to enforce your rights upon default, without needing the cooperation of a franchisee. Your New York franchise lawyer can provide further clarification in regards to establishing collateral assignment of lease in your franchise agreement.

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