Like other Florida business entities, franchisees and franchisors face the potential of serious damage from hurricanes and terrorist attacks. Now, we can now add national emergencies like the COVID-19 pandemic to the list. How a franchisee salvages their business may be affected by plans for disaster recovery and provisions in your franchise agreement.
The Relationship Between Franchisor and Franchisee
Both parties rely on the other for certain aspects for their unique relationship to work. For example, franchisees need clear communication about a franchise, particularly the franchisor’s expectations and financial disclosures. However, franchisors expect franchisees to abide by the agreements contained in one very important document – their franchise agreement.
Franchise agreements typically spell out fees, royalties, advertising expenses, the term of the agreement, and numerous other requirements.
Provisions for Disaster Recovery in Your Franchise Agreement
Franchisors may include terms that relate to disasters, whether natural events, disaster declarations by government officials, or terror attacks. Both pre-disaster preparations and post-discovery recovery efforts may be included. For example, common provisions that relate to disaster recovery and a franchise agreement include requirements that:
- The franchisee operates under state, local, and federal laws. As in our current COVID-19 public health emergency, many businesses were forced to curtail operations or close entirely.
- The franchisor may require the franchisee to carry insurance that provides coverage in the event of a disaster.
- Force majeure provisions may allow either franchisee or franchisor to withdraw from certain contractual obligations due to natural disasters or other events beyond their control.
- Franchisors may expect franchisees to quickly reopen after a disaster or public emergency.
Any disaster may present unique and seemingly insurmountable obstacles to the continued operation of a franchisee. In fact, the complexity of the franchisee-franchisor relationship and the resulting franchise agreement is why the advice of an experienced business lawyer is so critical.
Eligibility for Disaster Relief Funds
Franchisees may also find they are eligible for disaster relief funds, including loans offered by the Small Business Administration (SBA). However, current COVID-19 loans are limited to small businesses of 500 employees or less. Some franchisors and franchisees will qualify, but it is still important to discuss how loans for disaster recovery and your franchise agreement relate to each other.
Plan Ahead for Disaster Recovery in Your Franchise Agreement
As with any business transaction, it’s in your best interest to have your legal documents reviewed by a business attorney.
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.