In the September‚ 2009 edition of the Franchise Times magazine‚ Meredeth Barzen and Jonathan Maze‚ discuss an important and growing trend for both franchisors and franchisees: "increased litigation". As pointed out by Ms. Barzen and Mr. Maze in the current economic client there is a noticeable increase in franchise related litigation. That is franchisors are commencing lawsuits to enforce franchise agreement terms and obligations that in the past may have been overlooked.
It is my experience that this "increased litigation" is usually centered on issues involving enforcement of liquidated damage penalties upon early franchise termination‚ strict enforcement of post-termination restrictive covenants; early commencement of "non-compliance" litigation and enforcement of accounting rights.
My take on this? Although the current economic climate may serve as a motivating factor to pursue every source of revenue legitimately due to a franchisor‚ it is also a time to work together and evaluate methods for the overall improvement of a franchise business model that must serve the interests of both "franchisor " and "franchisee". A franchise is only as strong as its weakest franchisee.
Prior to buying a franchise it is important to have a franchise lawyer review the franchise agreement and other materials to protect you in the transaction as much as possible.
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