Renewal of the term of a franchise agreement provides an opportunity for the franchisor and franchisee to evaluate their relationship and determine whether the relationship should continue. Franchise agreements typically contain conditions the franchisee must satisfy to renew the franchise agreement, which the franchisor treats as consideration for the renewal. Among these are: the absence of uncured defaults both when the franchisee gives notice of renewal and at the beginning of the renewal term; the franchisee’s execution of the then-current form of franchise agreement being offered by the franchisor to new franchisees; the franchisee’s payment of a renewal fee; and the franchisee’s remodeling or refurbishing of the franchisee’s location to meet the franchisor’s current standards. This article focuses on another renewal condition often required by franchisors: the release by the franchisee of any legal claims against the franchisor.
The release requirement enables the franchisor to determine that the franchisee is satisfied the franchisor has fulfilled its obligations under the franchise agreement. From the franchisor’s perspective, this requirement, in effect, permits a reset or fresh start of the franchise relationship, with the franchisor benefitting from the knowledge that the franchisee is satisfied with that relationship and the franchisee making a determination that the benefits of the relationship outweigh any problems with the franchisor.
In many instances, a franchisor will be aware when a franchisee is unhappy. But at other times, the franchisor may not realize the franchisee is dissatisfied with a franchisor’s product or service rollout, franchise services, or other aspect of the relationship. The franchisee may be reluctant to confront the franchisor regarding an issue, may believe that a dialogue with the franchisor will serve no useful purpose, or may believe the franchisor’s acts and omissions have not risen to the level of a cognizable default by the franchisor. The release requirement may make the franchisee more willing to confront the franchisor, which may result in a resolution of the issue.