Today in the “Franchise Lawyer Special” series: What can I do if my Franchisee isn’t paying me? The fees you may be entitled to from your franchisees should be set out in the franchise agreement. These fees may include ongoing franchise fees, renewal fees, marketing fees, training fees and transfer fees.
So what can you do if your franchisee is breaching its obligation to pay the fees under the franchise agreement?
Speak to the franchisee
Your first option should be to speak with the franchisee. You may discover your franchisee has a genuine reason for failing to meet their payment obligations and you may be able to resolve the issue amicably. One option may be to agree on a payment schedule or a deferred payment which works for both you and the franchisee.
Check your rights
Your franchisee is required to pay you all moneys and fees owing to you as and when they fall due pursuant to the franchise agreement. The franchise agreement will most likely also provide that your franchisee is required to pay you, on demand, interest at the default interest rate on any amounts outstanding.
Know your options
Not paying the fees as set out in the franchise agreement when they fall due means that the franchisee is in breach of their obligations under the franchise agreement. Under a standard franchise agreement, you would be well within your rights to terminate the relationship with your franchisee, but you must follow the procedure as outlined in the agreement.
Generally the franchisor will be required to provide the franchisee with reasonable written notice. The franchise agreement will indicate what needs to be in the notice, and usually requires:
- setting out the breach;
- informing the franchisee that you propose to terminate the agreement unless it is rectified;
- the action required by the franchisee to rectify the breach; and
- the reasonable period the franchisee has to rectify the breach.
If the franchisee fails to rectify the breach, in this instance, making the relevant payments, within the set period, then you are well within your rights to terminate the franchise agreement.
Consequences of termination
After terminating the agreement, you have the right to require your franchisee to cease operation of the franchised business and to cease using the image, system, marks and any intellectual property that belongs to your business.
Depending on your franchise agreement, you may also have the option of purchasing from the franchisee any equipment, chattels, fixtures, stocks, etc. which are owned by the franchisee and held in connection with the business. The price that you can purchase it for is usually set out in the franchise agreement as well.
If your franchisee is not paying you, and you’ve already tried to speak and negotiate with them to no avail, you need to consult with a franchise lawyer. Your franchise lawyer will be able to review your agreement and discuss your available options and how you can enforce your rights. Getting paid is definitely well within your rights!