Force Majeure In Franchise Agreements

December 9, 2020 at 4:00 am

For more information on the changes below or other franchise issues, please contact one of the above authors or a member of our Litigation Groups franchises or franchises. Some of these issues fall outside the law of candour. We invited our DLA Piper colleagues in these areas (Government Affairs, Labor and Employment, Insurance) to respond. Our company has set up a Coronavirus Resource Centre, and you can also subscribe to our mailing list to receive our daily notifications, webinar invitations and other publications to help you navigate through these difficult times. If the franchised business is a retail business or restaurant or any other business offering goods or services from physical premises, a new franchisee needs time to equip (or even build) the premises. However, the franchisor will ensure that the franchisee begins to negotiate as quickly as possible so that it can collect royalties and that the contract therefore generally sets an opening period which, if missed, gives the franchisor the right to terminate the contract. However, given that most construction is currently underway and supply chains are severely disrupted and restricted (see below), it is unlikely that opening times will be met in the foreseeable future. At the same time, many franchise agreements contain detailed provisions for the training of key franchisees, which are normally provided by the franchisor. In the current circumstances, it can be very difficult for the franchisee to recruit the staff it needs and also difficult for the franchisor to provide the agreed training. It is therefore essential that the franchisor and the franchisee discuss extensions and schedule revisions as soon as possible, taking into account other planned openings throughout the network. The parties should also discuss extending the minimum term for an equivalent period of time.

In addition, Congress passed the Coronavirus Aid, Relief and Economic Security Act (CARES), which provides $349 billion in grants to some eligible small businesses and not-for-profit businesses to maintain existing labour and help bill wages and other expenses such as rent, mortgage and utilities. Any financial relief should also be included in the franchise document`s franchise publication document or in the declaration of substantial changes made by the franchisor, including the disclosure and installation of an agreement that a franchisee must sign to obtain discharge. More information about franchisors` advertising obligations during the COVID 19 crisis can be found in our Osler update, “Franchise Disclosure Obligations During a Pandemic.” The Senior Judge found that the franchisee was entitled to recover the amount he had spent on the equipment of the premises, on the grounds that it was wasted expenses that would be made in the hope that the franchisee would benefit from the second franchise contract for its full term, which would not have occurred. The obligation to exercise contractual powers in good faith is an implicit clause in all trade agreements. In addition, franchise legislation codifies this duty in the IEP, Ontario, Alberta, Manitoba, New Brunswick and British Columbia. The duty of good faith and fair action involves, among other things, the obligation not to exercise a contractual discretion in a manner that is not contrary to the reasonable expectations of the parties. In general, Canadian law requires that a party, when exercising contractual discretion, do so in a reasonable manner and in a manner that meets the reasonable expectations of the parties, not arbitrarily, caprico or for an improper reason of guarantee or motive. The decision is also consistent with the motivation given by other state appelncies courts with respect to force majeure clauses under which a party is not exempt from the benefit unless it can prove that it has exhausted all other service providers, regardless of: