What Constitutes a “wrongful” Termination Of A Franchise Agreement?

Hospitality Net published an insightful article also applicable to non-hospitality franchisees. Below are excerpts:

1. good Faith Or Bad What Constitutes A “wrongful” Termination Of A Hotel Franchise Agreement?

However, it should also be noted that if a franchisor has legitimate business reasons to justify termination of the franchise such as the failure to pay franchise fees or royalties, the Court may not care that the termination was also motivated by an improper reason and may uphold the termination based upon the legitimate grounds.

2. Does a Hotel Franchise Agreement Contain an Implied Covenant of Good Faith and Fair Dealing and, If So, What Is It?

Generally speaking, it’s the franchisee who attempts to use the implied covenant “creatively” to assert rights which may or may not be expressed in the contract. The franchisor, on the other hand, is likely to claim that the franchisee is using the implied covenant as a “blank check” to create a contractual right which doesn’t exist and to “rewrite” the contract in a manner which is more favorable to the franchisee.

3. After a Notice of Termination is Served, Should the Franchisor Or Franchisee, or Both, Run to Court to Obtain an Injunction?

By striking first, and moving for a preliminary injunction to prevent termination of the franchise, the franchisee may be able to focus the Court’s attention on the franchisee’s strongest argument — that without an injunction, the franchisee will lose its business, forfeit its investment and have its franchise canceled.

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