QUESTION

If a Franchisee unilateral terminate its franchise agreement,can the Franchisor pursue future lost royalties for the remaining years of the agreement?

Asked on May 02nd, 2012 on Franchise Law - California
More details to this question:
The business is a quick serve resturant in a food court mall. Its been operating on a net loss ( bleeding money ). and the mall agrees that the business needs to close. Hence, the franchise operations will terminate, but the Franchisor claims that I will still owe "future royalties" based on previous payments for the remaining years of the Franchise Agreement, whelter I am operating the business or not. Is it legal to to enforce such a situation? Is this common?
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1 ANSWER

Business Law Attorney serving Cincinnati, OH at Cors & Bassett, LLC
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A franchise is a contract and is binding like any other valid contract.  If the franchisor complied with federal and California franchise laws when it offered to sell you the franchise, then most likely the Franchise Agreement is enforceable.  Many franchise agreements state that they last for a certain number of years, and that the franchisee owes the franchisor the franchise fees for the entire term of the franchise agreement in the event the franchisee breaches the franchise agreement or in the event the franchisee terminates the franchise agreement early before it is supposed to end.  You need to consult an attorney to determine whether the franchise agreement complies with California and federal law, and whether the franchise disclosure documents complied with federal and California law.  In some cases, the franchise agreement can be held to be fraudulent, and in that case you would be released from future payments.  In other cases, the franchise agreement will be held to be valid and can be enforced, even if it requires future payments.  In many cases, the franchisor will negotiate a settlement with a franchisee who goes out of business.   I am an attorney licensed to practice law in the State of Ohio and I am not licensed to practice law in the state of California.  This answer is intended to be general information and does not constitute legal advice on your particular set of facts.  No attorney client relationship is established by this answer to your question.  
Answered on Jun 15th, 2012 at 2:58 PM

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