If the Devon Creek Franchise Agreement terminates automatically upon death or disability, is this prohibited by law in some cases?
Devon_Creek Franchise · 2024 FDDAnswer from 2024 FDD Document
| Section in | |||
|---|---|---|---|
| Franchise | |||
| Provision | Agreement | Summary | |
| n. | Franchisor's right of first refusal to acquire franchisee's business | Section 16.6 | Summary You must promptly notify us of any written offer to purchase your Franchise. We have fifteen (15) days to exercise our first right to buy it on the same terms and conditions, provided that (a) we may substitute cash for any other consideration, (b) we may pay the entire purchase price at closing, (c) our credit is deemed as good as the proposed purchaser, |
| Enoughison's oution to muchoso | Section 18.2 | (d) we have at least thirty (30) days to close and (e) you shall give us all customary seller's representations and warranties. | |
| 0. | Franchisor's option to purchase franchisee's business | Upon termination of the Franchise Agreement, we have the option to purchase your equipment, signs, advertising materials, supplies and inventory at your cost or fair market value, whichever is less. | |
| p. | Death or disability of franchisee | Sections 16.3, 16.4 and 16.7 | The Franchise Agreement will terminate automatically upon your death or permanent disability, unless prohibited by law and the Franchise is transferred within three (3) months to a replacement franchisee that we approve. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 37–42)
What This Means (2024 FDD)
According to Devon Creek's 2024 Franchise Disclosure Document, the Franchise Agreement will terminate automatically upon the franchisee's death or permanent disability. However, this automatic termination is not absolute. The FDD specifies that the automatic termination is 'unless prohibited by law' and if the franchise is transferred within three months to a replacement franchisee that Devon Creek approves. This indicates that certain state or federal laws may restrict the franchisor's ability to automatically terminate the agreement under those circumstances.
This provision protects the franchisee's estate or heirs by allowing a transfer of the franchise, provided Devon Creek approves the replacement franchisee and the transfer occurs within the specified timeframe. This ensures that the value of the franchise can be realized by the franchisee's beneficiaries, rather than being immediately lost due to termination. The three-month window provides a limited but reasonable period to arrange for the transfer.
Prospective Devon Creek franchisees should be aware of this clause and understand the conditions under which the franchise can be transferred to a replacement franchisee. It is important to investigate any state-specific laws that may affect the enforceability of the automatic termination clause. Franchisees should also consider having a succession plan in place to facilitate a smooth transfer in the event of death or disability, ensuring that the proposed replacement franchisee meets Devon Creek's approval criteria.