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Are franchise agreements likely to be amended as a result of the COVID-19 crisis?
John Pratt writes:
At the moment, nobody knows. Franchise agreements are all different, so the first thing any franchisor would want to do is have a clear idea of what they would want their franchise agreement to say should a similar situation arise.
The focus of attention is likely to be the ‘force majeure’ clause, which suspends a contract during periods when it is impossible for franchisees to perform.
Franchisors may want to specify that franchisees must, during any period of force majeure, comply with the franchisor’s instructions concerning their dealings with customers, so as to continue to maintain customer loyalty.
While certainly franchisees would want to see a clause that says during a force majeure event they do not have to pay continuing fees, it’s unlikely that franchisors would want to concede that.
Indeed, it would be dangerous for them to do so because franchisors will want to look at each franchisee’s financial position and make an individual assessment.
As a result, another area that would need to be reviewed is the extent to which franchise agreements should contain a clause that confirms all franchisees would be treated similarly, because franchisors in a situation like COVID-19 would want to treat franchisees differently.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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