Reviewing franchise agreements regularly can help franchisors stay on top of change, address current and potential business issues and help protect their legal interests in the event of a dispute or termination of an agreement.
Lawyers Faye Lucas and Peter Viitre of Sotos LLP offer the following tips on keeping franchise agreements up-to-date.
Recently, the Ontario Court of Appeal confirmed a franchise agreement that requires a franchisee to release its claims against the franchisor violates Section 11 of the Arthur Wishart (Franchise Disclosure, 2000) Act and is unenforceable. One way to revise such general release provisions could be adding a carve-out for claims under the act, such as, “All claims are released except to the extent limited or prohibited by the Arthur Wishart (Franchise Disclosure, 2000) Act.”
Franchisors must take note of legislation governing interest rates when drafting provisions. The usury limit in the U.S., for example, is not valid in Canada. It is an offence under the Criminal Code to charge and collect interest over 60 per cent per annum. One common pitfall for franchisors is the failure to realize lump sum penalties levied against franchisees for late payments may also be considered interest.
As markets change, franchisors must consider their brand offering and strategy to stay relevant. Franchise agreements must give them the right to change their trademarks. In a recent case, Liberty Tax sued a franchisee after they refused to change their name from U&R Tax Depot to Liberty Tax. The language used in the agreement was as follows:
U&R Tax Depot may choose to replace or modify certain licensed marks. Franchisee agrees to adopt and use, at franchisee’s cost, all licensed marks which Tax Depot designates in the policy and procedure manual. Franchisee agrees to cease use of all licensed marks as indicated in the policy and procedure manual.
The court found in favour of the franchisee because of the wording “certain licensed marks.” There was no mention of changing the name.