L. Michael Hankes  |  ATTORNEY AT LAW
tel (781) 817-5215  |  fax (781) 849-1472

Other Important Renewal Rights

In our last article, we focused on the Right to Independence as one of the important renewal rights guaranteed to Meineke Dealers who have completed fifteen (15) years in the Meineke System. There are, however, other fundamental renewal rights of which all renewing Meienke Dealers should be aware.

The renewal process under the Meineke FTA is relatively straight forward. All a renewing Meineke Dealer need do to start the process is give Meineke Notice of the Dealer’s intent to renew under Section 14 of the Meineke FTA at least six (6) months prior to the expiration of the term. For well over a decade, Meineke had established a proactive approach by approaching renewing Dealers well in advance of that six (6) month window and initiating the renewal process itself. The new regime may have departed from Meineke’s former collegial approach to renewal.

Under the terms of Section 14 of the Meineke FTA, Meineke cannot change the terms of a Meineke Dealer’s territorial protection, nor can Meineke change a renewing Dealer’s royalty structure. Our previous articles have focused on the way that Meineke Dealer’s territorial protection should operate under the Meineke FTA. This article will discuss the royalty structure in the Meineke FTA.

The very last paragraph of Section 14 of the Meineke FTA begins with the following language:

… The term “Successor Franchise Agreement” shall mean our then-current form of franchise agreement, which may contain provisions materially different from those contained herein, except: (i) that we agree not to materially change the provisions of Section 2.3, Section 3.2, Section 3.4, or Section 17.13

(Meineke FTA §14).

Section 3.2 is the section of the Meineke FTA which sets forth the structure of the royalty fees which the Meineke Dealers must pay to Meineke for delivery by Meineke of the Meineke System to them. When the form 2000 Meineke FTA was negotiated in the 1999-2000 time period, our negotiating team achieved a royalty structure which specified individual royalty rates in more than two dozen categories of services. The royalty rates for the majority of those services were set at five percent (5%), which at the time was a significant reduction from the eight percent (8%) royalties being paid under previously existing versions of the Meienke FTA. There were no minimum royalty payments, in the form 2000 Meineke FTA.

Beginning with the form 10/2010 Meineke FTA, however, Meineke significantly amended Section 3.2 governing royalty fees for all new Meineke FTAs executed after that date. The form 10/2010 Meineke FTA imposed minimum weekly royalties of $400.00 or $20,800.00 annually. It also altered Section 3.2 to re-order previously existing categories of services and increased a number of the previously existing five percent (5%) royalty rates to five and a half percent (5.5%). These modifications were material changes to Section 3.2 of the Meineke FTA.

As with the Right to Independence, renewing Dealers must be vigilant and pay attention to the terms of the Meineke FTA being offered by Meineke for them to sign upon renewal. The changes made to the Royalty Fees in Section 3.2 in the form 10/2010 Meienke FTA were designed to benefit Meineke by changing the cash flow going to it from the Dealers. These 2010 changes are still part of the current 05/2013 Meineke FTA and cannot be imposed by Meineke upon Dealers renewing older form Meineke FTAs. However, renewing Dealers who do not pay attention to the documents provided to them may end up signing away those rights. “Those who do not read are no better off than those who cannot.”

This article is intended for informational purposes only and is not to be relied upon as legal advice, as individual facts and circumstances may vary.