Legal Question in Business Law in Virginia

Hello,

I have invested in two units of a franchise. Recently, I decided not to pursue the opportunity anymore. The franchisor hasn't "wronged" me, I basically decided it was in my best financial interests to pass on the opportunity and not get tied into personal guarantees with leases, loans etc., and that my financial upside with a job given my background and credentials was greater. All that has been done so far is that I've signed the franchise agreement and paid the two franchise fees. The franchisor did invest some time and money in helping me search for a location, but I hadn't come to an agreement on a location, and haven't signed a lease. So there is no location and no operations as of now. There are no minimum royalties for this franchise in the franchise agreement.

I am wondering if it is possible to get a refund of all or part of the franchise fees, at least for the second unit for which the franchisor hasn't invested any time. My guess is that it's a sunk cost and I'll just have to move on, but I wanted to check and find out. One thing to note is that in the franchise agreement, it says "In the event a mutually agreeable site has not been located within 180 days after execution of this agreement by franchisor, franchisor shall have the right to terminate this Agreement and franchisor will refund to the franchisee all but $5000 of the initial franchise fee paid by franchisee, in consideration of franchisor's time, effort and expenses in traveling to and inspecting the proposed locations."

The agreement was signed in July 2009, so over 180 days has lapsed. Does this line give me any chance of getting some of my fee back? My guess again, is that since it says the franchisor has the right to terminate the agreement, doesn't mean the franchisor will indeed do it.

Would appreciate if anyone could help me with their advice. Thank you for your consideration.


Asked on 2/25/10, 3:42 pm

2 Answers from Attorneys
Michael Hendrickson Law Office Michael E. Hendrickson

Yes, Sir, you've nailed it, so to speak, in your third to last sentence, i.e.,

the "franchisor has the right to terminate the agreement" (with no

mention that he must or that the franchisee, i.e., you, have any similar right.)

Consequently, it would be my considered opinion that you'll have about as much

chance of getting any of these fees returned as the chance that we'll see

snow on the National Mall this coming July 4th.

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Answered on 3/03/10, 6:39 am
Kevin B. Murphy Franchise Foundations, APC

In addition to the contract language, you should have a franchise attorney examine the FDD Franchise Disclosure Document to see what was disclosed to you about refundability before you bought the franchise. You may find you have a legal leg to stand on.

Also, from a business perspective, keep in mind the last thing a franchise company wants is an unhappy franchisee, especially one that may pursue legal rights. If, for example, you did so, they would have to amend their FDD and disclose this to all new franchise buyers. It's very bad press for franchise companies and they will bend over backwards to avoid it whenever possible. Depending on the results of where things stand legally, a well-crafted letter may be all you need to get your refund.

Kevin B. Murphy, B.S., M.B.A., J.D. - Mr. Franchise

Franchise Attorney

www.franchisefoundations.com

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Answered on 3/12/10, 6:37 am


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