USA – ILLINOIS Law and Practice Contributed by: Carmen D. Caruso, Bill Whitner and Gage Meyers, Carmen D. Caruso Law Firm
Failure to register also exposes the franchisor to pri - vate liability: a franchisee may bring an action for dam - ages and, for a Section 10 violation, seek rescission under Section 26, which may require the franchisor to return amounts paid, less net income received, plus interest, reasonable attorney’s fees and costs. See 815 ILCS 705/26. A wilful violation may also consti - tute a Class 2 felony.
system-wide practice, but these are business norms, not legal mandates. Regardless of the term selected, the Act’s termina - tion and non-renewal protections apply for the agree - ment’s full duration and cannot be contracted around; a short initial term does not reduce a franchisor’s obli - gations if it does not intend to renew. 5.2 Franchise Renewal A franchisee’s statutory renewal rights and entitlement to compensation upon non-renewal depend heavily on the type of franchise; this guide addresses only general franchises, not motor vehicle franchises (gov - erned by the Illinois Motor Vehicle Franchise Act, 815 ILCS 710/1 et seq). The IFDA does not grant general franchisees a statu - tory right to renewal; instead, it regulates the financial consequences of non-renewal. Under Section 20, a franchisor that declines to renew may be required to compensate the franchisee for the “diminution in the value of the franchised business” caused by the fran - chise’s expiry. However, this statutory right to compensation only applies in certain circumstances, specifically when: • the franchise agreement, or the franchisor’s refusal to waive a restrictive covenant at least six months before expiry, prevents the franchisee from contin - uing substantially the same business under another trade mark, service mark, trade name or commer - cial symbol in the same geographic area following expiry; or • the franchisor fails to provide written notice of its intent not to renew at least six months before the franchise expires or any extension thereof. Notably, the IFDA does not establish a right to “good - will” compensation derived from commercial agency laws upon non-renewal. 5.3 Termination of the Franchise Agreement Illinois imposes meaningful statutory constraints on a franchisor’s ability to terminate a franchise. Under Section 19 of the IFDA, a franchisor generally may not terminate a franchisee before the end of its term
4. Other Requirements 4.1 Past-Profitability Requirements
Illinois does not require a franchisor to demonstrate a minimum period of profitable operation, a minimum number of company-owned or franchised locations, or any other operating-history threshold before offer - ing franchises in the state. Unlike jurisdictions that require an established track record, Illinois generally allows new and emerging franchise systems to offer franchises so long as they comply with the IFDA’s reg - istration and disclosure requirements. The FTC Franchise Rule and Illinois’ disclosure require - ments instead address these concerns through dis - closure rather than a profitability or operating-history requirement: a franchisor with little or no operating history must still disclose that fact, its litigation and bankruptcy history, and (if it chooses to make one) any financial performance representation, letting prospec - tive franchisees evaluate its track record themselves rather than being screened out by a regulatory thresh - old. In practice, franchisors with very limited operat - ing histories – sometimes called “emerging” systems – can and do register and sell franchises in Illinois, provided their disclosure is complete and accurate. 5. Duration, Renewal and Termination 5.1 Duration of a Franchise Agreement Illinois law does not impose a statutory minimum or maximum term for a franchise agreement; duration is a matter of contract between the parties, subject to the IFDA’s termination and renewal protections described below. Franchise terms in Illinois commonly range from five to 20 years depending on the indus - try, required capital investment and the franchisor’s
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