Minneapolis franchisee lawyer Ron Gardner explains what the first thing a franchisee should do after receiving a default letter.
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The first thing people should do when they get a default notice from their franchisor is open it. That sounds a little bit flip but I can’t tell you how many people say well, I got this letter, this certified letter from my franchisor 85 days ago and I opened it and it said I’m going to be terminated in 90 days. So a little flip but the reality is open whatever you get from your franchisor no matter how much you don’t want to know what’s in it. Assuming that you’ve opened that letter and in fact you’ve been put on notice of a default the very first thing that you should do is call a lawyer because the franchise relationship is a legal relationship and what they are giving you is a legal notice of the rights that they’re trying to invoke. Franchisors in most franchise agreements have a right, in fact, forget most, all, 100 percent of franchise agreements have a list of things that franchisors can terminate franchisees if they do or fail to do depending on what the various offence is.
If you don’t – and in all of those cases or most of them that process starts with a legal notice that says you have failed to do this correctly, if you don’t do it correctly in the next number of days you’re going to be terminated. That is critical that the franchisee know what the offense is and talk to a lawyer because the appropriate response is going to be governed not only by what’s in the franchise agreement and in the business relationship but in the state laws and state regulations that are in play in the contract and in wherever the franchisor or franchisee happen to be sitting. And so you have to understand what your legal remedies are. In some states that notice is going to be invalid depending on what the state law says about what the franchisor has to tell you in the notice. In other states they don’t have to give you that notice at all and it’s sort of a courtesy. You need to know that because maybe they can terminate you tomorrow if you’re in a certain state. On the other hand, they might not be able to terminate you for six months if you happen to be in another. You’ve got to find that out. Get a lawyer that’s what you do right after you open that letter.