You Received a Notice of Default. Here Is What Happens Next.
The short answer
A notice of default starts a clock, defines the dispute, and represents the last point at which the outcome is fully within your control. What you do in the first few days matters far more than what you do in the following few months. The most common response, a letter explaining why the franchisor is wrong, is the one response that accomplishes nothing.
Why it comes up
The notice arrives in the middle of an ordinary week. It cites contract sections, states a deadline, and reads like the opening move in a negotiation. It is not. In most systems it is a procedural prerequisite the franchisor is completing in order to terminate, and the deadline in it is real.
What the notice should contain, and why that matters to you
Where a state statute applies, the recurring requirement is that the notice state all of the reasons. Minnesota requires written notice setting forth all the reasons at least 90 days in advance. New Jersey requires the same at least 60 days in advance. Wisconsin requires that the notice state all the reasons, gives 60 days to rectify, and provides that if the deficiency is rectified within 60 days, the notice is void.
Two consequences follow, and both favor the franchisee.
A franchisor that omits a ground from the notice may be barred from relying on it later. The notice defines the battlefield.
And curing everything actually listed can void the notice outright. That is what Wisconsin says by statute, and most contractual cure provisions are structured the same way.
A well-drafted notice will identify the specific contract sections breached, the specific facts constituting each breach, the cure period and the exact cure deadline, precisely what cure requires, and the consequence of failing to cure. If yours does not, that is worth noting, though courts have been relatively forgiving of technical defects in notices and franchisors have been permitted to correct deficient ones.
Where the default is classified as non-curable, the document you received is a termination notice, not a default notice, and the analysis in our post on franchise defaults and terminations applies immediately.
Our take: five things to do in the first week
Read the notice against the contract, not against the facts. The first question is not whether the franchisor is right. It is what the cited sections say, whether the alleged breach is classified as curable or non-curable in Item 17, and what the cure period is. Everything else follows from those three answers.
Calendar the deadline the day the notice arrives, and check the notice provision. Whether a mailed notice is effective on deposit or on receipt can move the cure deadline by days. The notice article of the agreement controls, not intuition. So does the list of who must be copied.
Cure to the letter, in writing, with proof. Partial or informal cure loses. In one reported case, evidence that a franchisee had handed menus to some guests was held insufficient, without more, to establish cure. Document what was done and when, and send the documentation through the contractual notice channel.
Do not withhold anything while you dispute the default. This is the single most expensive instinct in franchise law, and the case law is unambiguous. In S & R Corp. v. Jiffy Lube International, Inc., 968 F.2d 371 (3d Cir. 1992), the court held that a franchisor's right to terminate exists independently of any claims the franchisee might have against the franchisor, and that a terminated franchisee's remedy for wrongful termination is an action for money damages, not continued unauthorized use of the marks. Withholding royalties to protest franchisor conduct is the fact pattern that loses.
Preserve your claims separately. If you believe the franchisor is in breach, or that the default was manufactured, that is a claim. It is not a defense to the cure obligation, and it needs to be developed on its own track rather than used as a reason not to cure.
One further point on sequencing. If the franchisor offers to reinstate or forbear in exchange for a signed agreement, read our post on broad releases before signing. Settlement of a default notice is one of the most common moments at which a general release is presented, and, notably, it is also the context in which such releases are most likely to be legitimate and enforceable, because it is a genuine post-dispute settlement rather than the price of a routine consent. That cuts both ways: the release is more defensible, and it is also more likely to actually extinguish what it says it extinguishes.
What it means practically
The cure period is the only phase of this process in which you hold the outcome. After it lapses, you are litigating from a materially worse position, against a party seeking an injunction, with the doctrines described in our post on franchise defaults and terminations running against you.
Assume the clock is shorter than you think. Cure periods are frequently measured in days.
If you have cured on prior occasions, understand that repeated defaults are commonly a non-curable ground on their own. A pattern of last-minute cures shortens the runway rather than establishing a tolerance.
When to call a lawyer
Within days of receiving the notice. Not after the cure period expires, when the available options have narrowed to two and both are expensive.
Why this is not a do-it-yourself problem
The notice arrives with a deadline that is usually too short to research the answer, and the correct response frequently runs against instinct. The instinct is to explain. The correct move is usually to cure completely and provably while separately preserving any claim you have, which requires knowing that curing does not waive the claim, that disputing does not extend the deadline, and that withholding payment converts a defensible position into an indefensible one. It also requires reading the notice provision, the cure provision, and the Item 17 classification together and quickly. A lawyer's value here is almost entirely a function of speed, and the window closes on a fixed date whether or not anyone has called one.
Talk to us
HDD Law Firm represents franchisees and franchisors in default and termination disputes in the Florida state courts, the Southern, Middle and Northern Districts of Florida, and the Eleventh Circuit. If you have received a notice of default, contact us promptly to discuss your matter, because the cure period runs regardless.
Related coverage: a franchisee facing termination sometimes has to choose between closing through an orderly wind-down and filing for Chapter 11, and the decisions that separate the two paths are not obvious.
Sources
● 16 C.F.R. 436.5, Contents of the disclosure document, including the Item 17 table (eCFR)
● Wis. Stat. ch. 135, Wisconsin Fair Dealership Law
● S & R Corp. v. Jiffy Lube International, Inc., 968 F.2d 371 (3d Cir. 1992) (CourtListener)
● Steak n Shake Enterprises, Inc. v. Globex Co., 110 F. Supp. 3d 1057 (D. Colo. 2015) (CourtListener)
● Burger King Corp. v. Mason, 710 F.2d 1480 (11th Cir. 1983) (CourtListener)
● American Bar Association, Franchise Agreement Provisions That Can Make or Break a Court Case
Disclaimer
This post discusses publicly reported legal developments for general informational purposes. It is not legal advice, it does not create an attorney client relationship, and it does not reflect the firm’s position in any pending matter. Outcomes depend on the specific facts and the governing law of the relevant jurisdiction.