I was until recently a franchisee in a 5 year agreement, which the franchisor terminated after 12 months because I was unable to keep up minimum royalty payments. This was due to lack of any cash coming into the business. (I didn't have any money to fund working capital as I was in a bad financial situation before I joined the franchise - something the franchisor was made fully aware of up front)
He repeatedly put pressure on me to borrow money from family to pay the royalties, and even suggested that I should do things like not pay my VAT or rent at home so I could pay him, and when I refused, he terminated the agreement.
The franchisor is now getting very nasty, and demanding not only outstanding payments, but also the balance of minimum royalty payments for the remainder of the 5 year term, which they claim is due under the agreement.
I don't have a problem with the paying off the outstanding payments.
However, I feel that claiming for the remainder of the term is totally unreasonable, as the franchise doesn't appear to be a viable one: I have now found out that NONE of the franchisees were able to make a reasonable profit (i.e. enough to hit the minimum turnover requirements) in the first year, so it wasn't just me.
How likely is the franchisor to be able to pursue this successfully?
Hi Arob
Firstly, sorry to hear about your problems with this franchisor. It's a tricky situation as you have signed the contract which no doubt means you are liable for everything they say you are. However if the franchise was not viable in the first place then it could be you were miss sold and as such it could be the table is turned as you could threaten to take them to court to refund your franchise fee and all costs.
I doubt very much they will take you to court - over the course of 2009 I have heard from a half dozen franchisee's in a similar situation to yours and things never went that far despite threats. It sounds to be like they are trying to intimidate you which is not good so I would stand firm and if you can afford it go and see a lawyer who would probably advise the same.
Perhaps a letter to them demanding back your franchise fee would go some way to making settlement with them - especially if backed up by several other franchisee's in the same situation as yourself.
Kind regards,
Matthew Anderson
The Franchise Shop