A franchisee established a new franchised business but, unfortunately, after 18 months of operation, the business incurred significant monthly losses. Despite adhering diligently to the franchisor's system, following all training and implementing suggestions, the financial situation did not improve. The franchisee, compelled to take on another job to offset losses, eventually persuaded the franchisor to repurchase the business, even at a loss.

Upon negotiation of a non-binding heads of agreement, where the franchisor took over some staff and prepared for the business transfer, the franchisee anticipated a swift transition. However, communication from the franchisor ceased for seven months, leaving the franchisee in limbo. Throughout this period, believing the franchisor would acquire the business, the franchisee refrained from advertising for sale, resulting in continued financial losses.

Unexpectedly, the franchisor changed its decision without notifying the franchisee.

 

The unsigned purchase contract and the non-binding nature of the heads of agreement allowed the franchisor to backtrack. Meanwhile, the franchisee accumulated approximately $300,000 in unpaid franchise fees and marketing levies.

In response, the franchisor issued a breach notice, threatening termination of the franchise agreement unless the outstanding fees were settled within 30 days.

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Statement of the Problem The franchisee despite diligently adhering to the franchisors system and attempting to resolve financial difficulties faced u... View the full answer