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Franchisors Must Ensure Renewals Are Signed By Their Franchisees Or Pay The Costs

The recent case of The Cheesecake Shop v A Shah Enterprise is a reminder for franchisors to ensure that their existing franchisees execute renewal franchise agreements. If they do not and the franchise agreement lapses they risk a costly court battle to decide whether there is a licence in place for the franchisee to operate the franchised business.

In the above case the franchisee continued to operate the franchise business after the termination date of the original franchise without executing the renewal franchise documents.

The relationship between the franchisor and franchisee then deteriorated, the franchisor alleging the franchisee was in breach of the franchise agreement. The franchisee argued they were not bound by the terms of the franchise agreement as it had terminated.

The franchisor alleged that the franchisee was bound by the terms of the original franchise agreement as the franchisee was continuing to exercise its rights under the original franchise agreement.

The Court held that a relationship between the franchisor and franchisee did exist and that as a result the franchise agreement was still in place operating as a licence terminable on reasonable notice.

It is important that franchisors are diligent in their renewal process to avoid the costs of going to court.

If you have any franchise law inquiries, please do not hesitate to contact us for further information.