Have you considered the impact of illness, incapacity or death in a franchising arrangement ?
For example:- where the Franchisee is an individual; or in the case of a corporate Franchisee, the director/Nominated Representative,
suffers a more serious illness; or
suffers a permanently incapacitating injury; or
dies.
If the Franchisee is a company with a sole director or the Franchisee is an individual, any serious illness, incapacity or death of that person will have a dramatic effect on the Franchised Business.
There are mechanisms you can put into place in the background to mitigate risk and to help manage the situation. Which mechanism to adopt will vary depending on the structure utilised for the Franchisee entity (eg. whether it is a sole director or multi-director company as Franchisee, a sole individual Franchisee or Franchise operating under a Partnership). Types of strategies which can be used might include one or more of the following, depending on the circumstances:
accident, trauma and life insurance
key man insurance
having an up to date and appropriately drafted Will
using an Enduring Power of Attorney (and/or Company Power of Attorney).
The Franchising Code of Conduct (“the Code”) does not specifically deal with the issue of illness, incapacity, or death of a Franchisee (or a Nominated Representative). As a result, it’s important to check the terms and conditions of the Franchise Agreement to see what the agreement says is the process where such an event occurs.
Some poorly drafted Franchise Agreements maybe entirely silent on the processes for dealing with illness, incapacity, or death of a Franchisee (or a Nominated Representative). However, Franchise Agreements that are better prepared may offer a range of processes if such an event occurred, such as:
entitling the Franchisor to manage the Franchised Business until the Franchisee or Nominated Representative regains their health; or
another Franchisee in the network (or nominated party) being able to manage the Franchised Business until the Franchisee or Nominated Representative regains their health; or
allowing the Franchisee’s personal representative (such as an attorney) or even family members (with appropriate training) to manage the Franchised Business until the Franchisee or Nominated Representative regains their health; or
allowing the Franchisee (or their personal representative) to sell the Franchised Business; or
entitling the Franchisor to elect to buy back the Franchised Business through a first right of refusal arrangement; or
the Franchisor simply offering to buy back the Franchised Business; or
a negotiated surrender of the Franchise Agreement; or
enabling the Franchisor to terminate the Franchise Agreement.
Depending on the circumstances, one or more of the above may apply and there may be other possible solutions that can be noted in the Franchise Agreement or negotiated.
A related aspect is succession planning. Its important to note that:
any legal personal representative / executor cannot simply step into the shoes of a director;
there is a lag time in probate being granted in respect of a deceased director's Will the event of death, which then delays the legal personal representative / executor formerly being appointed.
Illness, incapacity and death is a very important issue that should not be overlooked both in terms of succession planning and when considering a franchise.
If you are an intending Franchisee, we recommend you obtain legal advice from solicitors experienced in franchising law, such as Greyson Legal | Franchise Lawyers, before you sign a Franchise Agreement. We can:
review franchise documents
help you understand your rights and obligations
give you a comprehensive report on the terms and conditions of the franchise documentation
advise you of changes we recommend
alert you to issues you should clarify with the Franchisor
help you negotiate with the Franchisor
check compliance with the Franchising Code of Conduct
advise on related Lease and other commercial documentation
assist you with appropriate succession planning
Contact Greyson Legal | Franchise Lawyers for further information: mail@greysonlegal.com