Q&A

[Q] What happens if I die, or become incapacitated and cannot run the business?

 

[BIO] JONATHAN CHADD
Jonathan is the head of franchising for Leathes Prior Solicitors.

[A] Every franchise agreement should include a clause that sets out clearly what is to happen in those circumstances. The British Franchise Association (bfa) Code of Ethics requires franchisors to ensure that such provisions are fair and reasonable to the franchisee.

The franchisor needs to ensure that the business continues to operate and will, therefore, usually include in the agreement terms entitling it to appoint a manager to run the business until (in the event of temporary of incapacity) the franchisee recovers sufficiently to resume the management himself.

Alternatively, (in the event of death or permanent incapacity) such temporary management may continue until the franchisor is notified either that a beneficiary of the franchisee wishes to take over the business or a buyer is found for it.

The agreement will normally permit the franchisee to pass the business to a member of his family or other beneficiary, subject to that person being approved by the franchisor as suitable to run the business and undertaking the necessary training to enable him to do so.

There will be time limitations imposed upon the franchisee's personal representatives within which they will need to decide either to pass the business to a beneficiary or to put it up for sale. The agreement will also specify the period within which a buyer should be found. Such periods seldom extend beyond six months on the basis that the franchisor cannot realistically be expected to provide a manager for an extended period and the longer the period before a buyer is found the more likely it is that the business will suffer from the absence of a new owner. That cost of the interim manager is borne by the business and the agreement may even indicate the level of charge to be made for his/her services.

If a husband and wife own the business together, then the death of one of them will not normally result in the franchisor being entitled to put in a manager since the business will continue to be run by the surviving spouse. The same would apply to partners.

Therefore, when taking up a franchise it is important for franchisees to check carefully the terms of the franchise agreement on this point, to consider taking out ‘key-man' insurance, which will provide funds, in the event of death or incapacity, to meet the costs of a manager and/or other costs arising from those circumstances. They should also make a will identifying to whom their interest in the business is to pass in the event of their death.