In Virginia, can Aerus terminate a franchise agreement solely based on the franchisee's bankruptcy?
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."
No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
Source: Item 23 — Receipts (FDD pages 74–305)
What This Means (2025 FDD)
According to Aerus's 2025 Franchise Disclosure Document, a provision in the franchise agreement that allows Aerus to terminate the franchise due to the franchisee's bankruptcy may not be enforceable under federal bankruptcy law in Virginia. Specifically, the Virginia Addendum to the Disclosure Document states that any such provision might not be enforceable under 11 U.S.C. 101 et seq. This means that while the franchise agreement may contain language allowing termination upon bankruptcy, federal law could override that provision, protecting the franchisee.
Furthermore, the Virginia Retail Franchising Act prohibits Aerus from canceling a franchise without reasonable cause. If the grounds for termination, such as bankruptcy, do not constitute "reasonable cause" as defined by the Virginia Retail Franchising Act or Virginia laws, that termination provision may not be enforceable. This provides an additional layer of protection for franchisees in Virginia, ensuring that terminations are based on legitimate and justifiable reasons.
Additionally, the addendum specifies that no statement, questionnaire, or acknowledgment signed by a franchisee can waive claims under applicable state franchise law, including fraud in the inducement, or disclaim reliance on statements made by Aerus or its representatives. This provision supersedes any conflicting terms in other documents, reinforcing the franchisee's rights and protections under Virginia law. Therefore, prospective Aerus franchisees in Virginia should be aware of these protections and understand that the enforceability of termination clauses related to bankruptcy is subject to legal scrutiny under both federal and state laws.