Franchisee 101: Real Estate Amendment Not Up to Interpretation

Lewitt Hackman

A franchisee sued real estate franchisor Century 21 for a declaration whether the franchisee could end its franchise agreement early despite a provision that deleted the franchisee’s early termination right. Noting the lawsuit raised “a straightforward question of contract interpretation,” the court granted the franchisor’s motion to dismiss, finding the provision “means exactly what it says.”

The franchisee and franchisor entered a franchise agreement in 2011, which granted the franchisee a “one-time right to terminate.” The effective date of termination was to be the 10 year anniversary of opening provided the franchisee made a payment with its termination notice, of “any and all amounts not previously paid and/or forgiven under any existing promissory notes.”

In 2014, franchisee and franchisor executed an amendment, which deleted any termination right granted to the franchisee under the franchise agreement for “retirement, death, disability or any reason” and replaced such right with a new provision permitting early termination only when a majority franchise owner dies or becomes disabled. The franchisee contended this amendment was added by the franchisor merely to update its standard franchise agreement.

The franchisee argued that the amendment did not delete the original termination language because the “any reason” phrasing must be interpreted as limited to “retirement, death, or disability” and the use of “any reason” is ambiguous, negating dismissal at the pleadings stage.

The court easily rejected the franchisee’s argument that “any reason” was ambiguous and agreed with the franchisor that “any reason” has a “straightforward definition”: “reason” is an explanation, justification, motive, or ground; and “any” means “every,” “all,” or “one or another.”

The court was unpersuaded that “any reason” must be read in conjunction with “retirement, death, or disability.” Rather, it found that “any reason” should be given the meaning that is independent of the other terms, otherwise “any reason” would be superfluous.

The court noted the franchisee was aware of the franchise agreement’s original language when the franchisee agreed to delete the termination right, establishing clear intent of the parties.

Franchisees must review and understand all proposed modifications to the franchise agreement sought by the franchisor prior to signing, even if the changes appear “boilerplate.”

Modifications are often material and can have significant consequences to a franchisee’s previous rights. Franchise counsel can consult and advise over any modifications proposed by a franchisor to help franchisees understand and preserve their rights.

Everest Realty Group v. Century 21 Real Estate, No. 2:21-cv-00150-TC-DAO, 2021 WL 2592848 (D. Utah June 24, 2021)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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