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10 Franchise L.J. 1 (1990-1991)

handle is hein.journals/fchlj10 and id is 1 raw text is: - . . .. .A i Renewals: Questions and Pitfalls for Franchisors and Some Distributors by John R.F. Baer and Pamela J. Mills* Chicago, Illinois Pamela J. Mills When business format franchising was in its formative stages, counsel generally drafted simple renewal provisions for franchise agreements. The provisions were designed to satisfy franchisees' desires to keep their franchises beyond the initial term while minimizing any obligation on the franchisor. These provisions generally granted the franchi- see some right to renew or negotiate renewal, but were vague concerning the franchisee's exercise of these rights. Unfore- seen statutes and regulations; the evolution and sophisti- cation of franchising; the art of drafting franchise agreements and structuring the franchise system; changing business conditions; rapid franchise system changes; plus a myriad of other factors have left franchisors facing tough renewal choices from legal and business perspectives, whether the renewal is of one franchise or systemwide. Unfortunately, franchisors have little guidance in how to make these choices and there are very few reported court decisions involving renewal issues. The goal of any franchisor in renewing a franchise is sim- ple-to bring the franchisee's operation up to the franchi- sor's current standards and specifications for appearance and operations, hopefully using the franchisor's current form *Mr. Baer and Ms. Mills are partners in the Chicago office of Keck, Mahin & Cate. franchise agreement with all of its recently devised fees, pro- tections, and provisions. The goal of the franchisee is the opposite-to minimize its investment in connection with the renewal while preserving as closely as possible many benefits of its prior franchise relationship. The conflict in these goals is exacerbated when renewal is systemwide and the franchisor faces renewal of numbers of franchisees, who may have conflicts among themselves. Imagine the plight of a franchisor facing renewal within a short time span of half of its franchised system. Many renewing franchisees currently pay a 2 percent advertising fund contribution, while newer franchisees pay 4 percent. Older franchisees threaten to leave the system if they are required to pay the higher amount; newer franchisees threaten to leave if they must continue bearing the brunt of the advertising burden. A provision stating that all franchi- sees must renew on the current form franchise agreement does not resolve any issues because the franchisor has the power to modify this form. (continued on page 13) Jonn N. r. baer

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