The Perpetual Agreement Issue (Part A)

In the franchise relationship, some state laws require good cause for the termination and/or non-renewal of a franchise. Some people assert that when read literally and strictly, these laws turn the franchise relationship into a perpetual relationship, because only an intervening breach can give good cause for the termination of a franchise. Oftentimes this is referred to as the perpetual agreement issue.

Franchisees are often in favor of these laws, as the laws protect the goodwill established by franchisees. A franchisee may argue that the goodwill they have established will accrue to the franchisor (or dissipate altogether) if the franchise agreement is terminated.

If the perpetual agreement issue is presenting problems for you because of the breach of your franchise agreement, a New York franchise lawyer can help you to examine the legal implications of such franchise-related challenges. An experienced lawyer may help you protect your franchise in New York.

How the Perpetual Agreement Issue Affects a Franchise

Generally, a franchise agreement will have a fixed term, which may be for 10 or 20 years. This franchise agreement may or may not include any right of renewal. These fixed-term franchise agreements usually do not permit termination during the contract term, unless for reasons specified within the contract, such as the failure to cure a breach of the agreement. A breach will often constitute good cause for the termination of a franchise.

Most franchise agreements do contain provisions for renewal. In some cases, only one renewal may be permitted, but this may be for a long period of time. Or an agreement may offer an unstated, indefinite term of renewal or successive renewal opportunities.

If a fixed-term agreement does not provide for the renewal of a franchise, the agreement will expire in accordance with its terms. It is unclear whether the good cause requirement of some franchise laws mandates the renewal of a fixed-term agreement, which presents the perpetual agreement issue. If such laws do mandate the renewal of a franchise, the perpetual agreement issue may be the case in your agreement.

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