This is part 2 on the topic of renewals. The focus of this post is clearing up old business and releases. During the course of the prior franchise term, the relationship between the franchisee and franchisor has developed. Issues, disputes, breaches, and defaults may have arisen. At the time of renewal, a release is typically signed as a condition to the renewal of a franchise agreement.
The requirement for signing a release is good practice. The rationale is to remove the cloud of claims and litigation from the future franchise relationships. Parties have freedom of contract and parties should be free not to form agreements with those that wish to sue them. There is an exchange of consideration, for the signing of a release and satisfaction of conditions; franchisees are granted a future limited license to operate a franchised business. To wit: franchisors should obtain a release when permitted by law during the renewal process.
However, when known issues of dispute, breach, or default exist under the prior franchise term, releases are insufficient to address old business. Here is why:
1. Releases do not solve disputes, issues, breaches, or defaults. A Release is a promise not to sue or wage a claim. Releases do not resolve conflicts.
2. Releases may not be enforceable. In some states, relationship laws prohibit the requirement that a release agreement be signed as a condition to renewal of a franchise agreement or render the enforcement of such releases as null.
3. Frequently the releases are unilateral. Unilateral, meaning the franchisee must agree not to levee any claims or demands against the franchisor, but the franchisor makes no such agreement to waive any claims or demands against the franchisee.
In event of disputes, breaches, or defaults, best practice requires: (1) the franchisor giving franchisee’s advance notice of disqualification for renewal, breaches, or default (see renewals part 1 on Notices), (2) the franchisee and franchisor negotiating and entering into a settlement and release agreement (not a standard release) resolving and releasing claims incident to renewal, and (3) finally, the granting of a renewal term by way of the franchisee and franchisor signing a renewal franchise agreement.
A settlement and release agreement is superior to a standard release where there are known disputes, breaches or defaults. Settlement and release agreements resolve issues and are more enforceable than a standard release. While numerous state laws prohibit releases as a condition to renewal of a franchise, a release as part of a settlement is almost universally enforceable