Most franchise agreements last five years and give franchisees at least two "automatic" renewal options, so that if a franchisee has complied with the terms of the agreement, the franchise will continue for fifteen years. Proposed changes to "soften" the personal warranty: even if franchisors require a personal guarantee in practice, the law does not require it. Therefore, as a franchisee if you do not want to offer a personal guarantee, your best strategy is to try to negotiate an alternative with the franchisor before signing the contract. There are two main alternatives. Your ability to negotiate the application and scope of a personal guarantee may depend on whether you are a franchisee with a unit or a franchisee with multiple units. Consider asking the franchisor to limit the duration of personal guarantees so that they are a good reputation after a number of years of activity. · A franchised compensation clause that protects the franchisee from receivables and reimburses franchisors` user fees if used properly by the franchisee. The personal guarantor is included in the franchise agreement and contains an exposure to the guarantee agreement that the person must sign. The franchisor generally has the option of amending the franchise agreement every five years and requiring a franchisee to enter into the revised agreement, provided it is the franchisor`s "current contract." It has often been said that franchise agreements are the most one-sided trade agreements and to some extent that is the case. Finally, a franchisor allows you to use its brand, to take advantage of its reputation and also to use all its know-how. In these circumstances, it is entirely reasonable to ensure that a franchisee does not do anything that could harm the franchisor`s brand and thereby adversely affect investments made by other franchisees.
If the franchisee operates a franchise through a limited company, the franchisor will require a personal guarantee from one or more individuals who created the franchise. Setting up a business structure such as a limited liability company or company to operate a franchise does not protect you from personal liability if you sign a personal guarantee. What is important is that you can remain personally responsible as part of a warranty long after you have sold or abandoned the business. The guarantors should carefully read the warranty to understand what they must personally guarantee. Is the guarantee of the joint and several? Co-responsibility means that co-guarantees are responsible for the full amount of the debt.