Under what circumstances might the Aerus franchise agreement's termination provision related to bankruptcy be unenforceable?
Aerus Franchise · 2025 FDDAnswer from 2025 FDD Document
Any provision in any of the contracts that you sign with us which provides for termination of the franchise upon the bankruptcy of the franchisee may not be enforceable under federal bankruptcy law (11 U.S.C. 101 et seq.).
"According to Section 13.1 – 564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor to cancel a franchise without reasonable cause. If any grounds for default or termination stated in the franchise agreement does not constitute "reasonable cause," as that term may be defined in the Virginia Retail Franchising Act or the laws of Virginia, that provision may not be enforceable."
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, a provision allowing termination of the franchise agreement upon the franchisee's bankruptcy may not be enforceable under federal bankruptcy law. This is specifically noted in the Virginia Addendum to the Disclosure Document. The reference to federal bankruptcy law (11 U.S.C. 101 et seq.) indicates that the enforceability is subject to the provisions and protections outlined in the federal bankruptcy code.
This means that if an Aerus franchisee in Virginia files for bankruptcy, Aerus's ability to automatically terminate the franchise agreement based solely on the bankruptcy filing may be restricted. Federal bankruptcy law is designed to provide debtors with certain protections, including the ability to reorganize their finances and continue operating their business. A blanket termination clause could be deemed to violate these protections.
For a prospective Aerus franchisee, particularly in Virginia, this addendum offers a degree of protection. It suggests that Aerus cannot automatically terminate the agreement simply because of a bankruptcy filing. However, it is important to note that this does not prevent Aerus from terminating the agreement for other valid reasons, such as failure to meet performance standards or violation of other terms of the agreement. Franchisees should consult with a legal professional to fully understand their rights and obligations under both the franchise agreement and federal bankruptcy law.
Additionally, the Virginia Retail Franchising Act prohibits franchisors from canceling a franchise without reasonable cause. If any grounds for default or termination stated in the franchise agreement does not constitute "reasonable cause" as defined by Virginia law, that provision may not be enforceable. This provides an additional layer of protection for franchisees in Virginia against arbitrary or unfair termination.