Case law on the subject of a franchisor’s ability to collect future royalties, that is, royalties for the remainder of the term of the franchise agreement, is conflicting. Courts across the country have been unable to agree on when a franchisor may collect future royalties.

While guaranteeing the collection of future royalties from a terminated franchisee is impossible, there is one obvious but often overlooked way to increase the likelihood that a court or arbitrator will find in the franchisor’s favor when faced with the issue. That is, to disclose to the franchisee in the FDD, and include language in the franchise agreement, stating with specificity the franchisor’s policy on collecting future royalties. State for what period of time the franchisee willl be responsible for such royalties, ie for a certain number of months, or until the end of what would have been the franchise term. Also include what amount the franchisee will be expected to pay, for instance the average royalties paid by the franchisee over the past 6 or 12 months, or whatever time period the franchisor seeks to use.

Including specific and detailed language in the FDD and franchise agreement will not guarantee that a franchisor prevails with regard to a future royalties claim. However, NOT including such language will in my view guarantee that the franchisor loses such a claim.