Item 17: Renewal, Termination, Transfer, and Dispute Resolution
Item 17 of the amended Rule is substantively similar to Item 17 of the UFOC Guidelines. It requires franchisors to summarize, in the specified tabular format, common provisions of franchisee agreements, including those provisions dealing with termination, renewal, and dispute resolution. The Item 17 table must begin with the following prescribed statement, in boldface type:
This table lists certain important provisions of the franchise and related agreements. You should read these provisions in the agreements attached to this disclosure document.
If the franchise agreement is silent regarding one or more of the categories enumerated in the prescribed table, but the franchisor voluntarily offers to provide certain benefits or protections to franchisees as a matter of policy, then the franchisor may add a footnote to the table describing the policy and state whether the policy is subject to change. For example, if the franchisor routinely offers to buy back a franchised outlet upon the death of the franchisee-owner, that policy may be added as a footnote to the line in the table for “Death or Disability of Franchisee.”
The amended Rule is somewhat different from the UFOC Guidelines in its treatment of the topic of renewals. Specifically, the amended Rule requires franchisors to explain their renewal policy in the “Summary” column of the line in the table titled “Requirements for Franchisee to Renew or Extend.” This requirement is designed to prevent prospective franchisees from being confused or misled about what is meant by the term “renewal” – a term that may be applied differently from one franchise system to another. For example, in many franchise systems, a right of renewal means that the franchisee, upon the expiration of the original term of the franchise agreement, has the right to enter into a new agreement according to the then-current terms and conditions. In other systems, the franchisee may have a simple right to extend the existing agreement under the same terms and conditions for an additional period of time. Regardless, the franchisor must explain in the summary column in the line titled “Requirements for the Franchisee to Renew or Extend” what the term means in its system. If the franchisor’s policy is that franchisees may be asked to sign the then-current agreement, then the franchisor must also include a statement alerting franchisees that the terms and conditions of the renewal contract may differ materially from those of their initial contract. Franchisors have the flexibility to include a statement of their choosing as long as it conveys the idea that the renewal agreement may impose materially different terms and conditions than those in the original agreement.
This article is part of a series of articles on starting a franchise in Minnesota.
CREDIT: The content of this post has been copied or adopted from the Federal Trade Commission’s Franchise Rule Compliance Guide.