From time to time DDIFO is pleased to present Guest Commentary from valued contributors. Guest commentaries feature the views and opinions of the contributor and are not necessarily the opinions of DDIFO and it’s Board of Directors. The following is an article written and submitted by Keith J. Kanouse, Esq. titled: Is a Dunkin Donuts Franchise Really Only a 20-Year “Rent a Business?” Kanouse & Walker, P.A., One Boca Place, Suite 324, Boca Raton, FL 33431, (561) 451-8090 Email: firstname.lastname@example.org website: www.kanouse.com
The current form of Dunkin’ Donuts Franchise Agreement is for an initial term of 20 years with no right to renew for any additional time period. The Franchise Agreement is governed by Massachusetts law. There is no Massachusetts law requiring a franchise agreement to have a renewal right except for motor vehicle dealer agreements. It is up to the parties to the contract. Dunkin Donuts states in Note 2 of ITEM 17 of its Franchise Disclosure Document that: “We believe it is impractical to specify renewal terms since circumstances may change substantially by the end of the term. When the term expires, it is our sole right to determine whether, and on what basis, we will agree to further renew your franchise.”
This means that at the end of 20 years the franchise relationship ends, unless corporate decides they want to offer you a new franchise agreement which will probably contain more onerous terms and you are willing to sign it. So much for saying the relationship between the franchisors and its franchisees is a “partnership.”
If you are not offered another franchise or if you don’t like the new terms, the post expiration provisions of your existing Franchise Agreement apply. Here is what that means.
1. You must immediately cease operating the business. Under Section 14.7.2 of the Franchise Agreement you must close the store and not represent yourself to the public as a Dunkin donuts franchisee. You must take down the signs and stop using the Manuals and other confidential information.
2. You must get out of the donut business for 2 years. Under Section 10.2 of the Franchise Agreement you agree that upon the expiration and non-renewal of the Franchise Agreement you agree not to operate a competing business at your present store, within 5 miles of your present store and within 5 miles of another other Dunkin Donuts store operating or under development. If you are leasing your store, you will have to change to flipping burgers or other non-competitive business, that is, if your landlord will allow it. It will cost you thousands of dollars to de-identify and re-equip the premises and any goodwill and customer based you have created over the past 20 years disappears.
3. You must offer to sell store to Dunkin Donuts. Under Section 14.7.5 of the Franchise Agreement you must offer to sell the assets of your Dunkin Donuts Franchise to Dunkin Donuts at fair market value less any indebtedness on equipment or amounts due Dunkin Donuts. There is no obligation for Dunkin Donuts to buy your business. They will only do it if you have a profitable and successful business. You may get some cash but you’ve lost your livelihood. If they are not excited about your business they will not buy it and you will have to change the premises and do something else with it.
4. You must offer to assign your lease to Dunkin Donuts. Under Section 14.7.6 you must assign your lease to Dunkin Donuts. Even if they take it over, you will still remain liable to the landlord for future rent and other obligations after take-over unless you have negotiated a release from the landlord under the lease or under any personal lease guaranty.
5. You must assign your telephone number. Under Section 14.7.7 of the Franchise Agreement you must assign your rights to your business telephone numbers, fax numbers, e-mail address, directory listings, etc. to Dunkin Donuts.
The effect of all of this is that you did not really buy a franchise in which you build up equity to sell or to give to your kids; you “rented” a franchise business for 20 years. It makes it virtually impossible for you to resell the franchised business if there are only a few years left. At the end, like any lease, there is no equity accumulated. The business cannot be sold or inherited after the end of the renewal term – it disappears. Most franchisees really do not understand this; otherwise they may never have signed the franchise agreement in the first place. You want to own your franchised business for as long as it makes money – not lease the franchised business for 20 years and end up with zilch.