Franchise Fee Collection Attorney

A franchise agreement is a contract with a payment schedule. When a franchisee stops remitting royalties, advertising fund contributions, technology fees, or the balance of an initial franchise fee, the franchisor holds a contract claim that New York courts enforce like any other commercial debt. The difference is the regulatory overlay. New York regulates franchise sales under Article 33 of the General Business Law, and a franchisee facing a collection suit will look there for a defense. Our firm represents franchisors and master franchisees in recovering unpaid fees across New York while anticipating and defeating those defenses.

What Franchise Fees Can Be Collected

General Business Law § 681(7) defines a franchise fee broadly. It includes any payment a franchisee makes for the right to enter into or continue the franchise relationship. In practice, the collectible categories under a typical New York franchise agreement are:

• Initial franchise fee: the lump sum or installment payments due at signing or opening. Unpaid installments are recoverable as liquidated contract sums.
• Continuing royalties: usually a percentage of gross sales, payable weekly or monthly. These accrue as separate installments, each with its own due date.
• Advertising and marketing fund contributions: percentage payments into a system-wide fund. Most agreements treat these as fees owed to the franchisor, not held in trust for the franchisee.
• Transfer, renewal, and training fees: fixed charges triggered by specific events.
• Late charges and contractual interest: enforceable as written so long as they are not penal.
• Post-termination damages: lost future royalties for the unexpired term, either as a liquidated damages sum or as proven actual damages.

If the franchisor also supplies inventory, equipment, or proprietary products, those charges are collected on an unpaid invoice theory alongside the fee claim. The two can be joined in a single action.

Governing Law and Deadlines

Statute of limitations

A franchise fee claim is an action on a contract. CPLR 213(2) gives the franchisor six years from the date each payment came due. Because royalties accrue in installments, each missed payment starts its own six-year clock. A franchisee who stopped paying in March 2023 can be sued on that March 2023 royalty until March 2029, and on each later missed royalty until six years after its own due date. Payments more than six years old are lost unless the franchisee acknowledged the debt in a signed writing under General Obligations Law § 17-101, which restarts the period.

The franchisee's likely counterclaim

Franchisees sued for fees frequently counterclaim under General Business Law § 687, which prohibits untrue statements and material omissions in connection with a franchise sale, and § 691, which creates a private right of action for rescission and damages. Two points limit that exposure. First, § 691(4) requires the franchisee to sue within three years after the violation. A franchisee who signed in 2019 and first raises a disclosure complaint when sued for 2024 royalties is generally time-barred on the affirmative claim. Second, § 691 damages require proof of a knowing violation for rescission relief. We assess the franchise disclosure document and the acknowledgment pages at intake so the counterclaim can be addressed on the pleadings rather than after discovery.

One caution: § 687(4) and (5) void any contractual waiver of Article 33 compliance. A release or acknowledgment clause in the agreement will not, by itself, dispose of a fraud counterclaim. The defense has to be built on facts and the three-year bar.

Interest

CPLR 5001 awards prejudgment interest on a contract claim from the date each sum became due. CPLR 5004 sets the rate at nine percent per year unless the contract specifies a different rate. On $40,000 in royalties eighteen months past due, that adds roughly $5,400 before judgment, and interest continues at nine percent after judgment under CPLR 5003.

Attorney's fees

New York follows the American rule. Fees are recoverable only if the franchise agreement contains a fee-shifting clause. Most do, and we plead the clause in the complaint and prove fees at the damages stage.

How the Collection Action Proceeds

Step one: notice of default

Nearly every franchise agreement conditions termination and acceleration on written notice and a cure period, commonly ten to thirty days. Skipping the notice invites a defense that the debt was never properly declared due. We send the notice by the method the agreement specifies, calculate the cure deadline, and document non-payment before filing.

Step two: choosing the forum

If the agreement contains an arbitration clause, the claim proceeds under CPLR Article 75. The resulting award is confirmed as a judgment by petition under CPLR 7510, which must be filed within one year of delivery of the award. If the agreement selects New York courts, the action is filed in Supreme Court in the county fixed by the forum clause. Claims exceeding the Commercial Division threshold are assigned there under 22 NYCRR 202.70.

A franchisor organized outside New York should confirm it holds authority to do business here before suing. Business Corporation Law § 1312 bars an unauthorized foreign corporation doing business in New York from maintaining an action until it registers and pays back fees.

Step three: the personal guaranty

Most franchise agreements are signed by an operating entity and backed by a personal guaranty from the owners. An unconditional guaranty of payment qualifies as an instrument for the payment of money only, which means the franchisor can move under CPLR 3213 for summary judgment in lieu of complaint. The motion is served with the summons, and the guarantor must answer the motion rather than file an answer. Judgment can issue in a few months instead of the year or more a plenary action takes. We use the same procedure for defaulted promissory notes given for financed initial fees.

Step four: proving the amount

Royalties depend on reported gross sales, and a franchisee who stops paying usually stops reporting. Franchise agreements grant audit rights and allow the franchisor to estimate sales from prior periods or point-of-sale data when reports are missing. We invoke the audit clause, subpoena merchant processor records if needed, and present the calculation through a business records affidavit under CPLR 4518.

Worked Example

A franchisee operating a single unit under a ten-year agreement stops paying its six percent royalty and two percent advertising contribution in January 2024, with average monthly gross sales of $60,000. By July 2024 the unpaid fees total $28,800. The agreement requires a fifteen-day cure notice, carries a $250 monthly late charge, and includes a liquidated damages clause for lost future royalties equal to two years of average royalties. We serve the notice on July 8; the cure period expires July 23; we terminate on July 24 and file suit against the entity and the two guarantors. The complaint seeks $28,800 in fees, $1,750 in late charges, liquidated damages of $86,400, nine percent interest from each due date, and contractual attorney's fees. Against the guarantors we move under CPLR 3213 on the fee arrearage. The liquidated damages clause is defended under the standard in Truck Rent-A-Center, Inc. v. Puritan Farms 2nd, Inc., 41 N.Y.2d 420 (1977): reasonable estimate of actual harm at the time of contracting, not grossly disproportionate.

Enforcing the Judgment

A New York money judgment is enforceable for twenty years under CPLR 211(b) and becomes a lien on the debtor's real property in any county where a transcript is docketed, valid for ten years under CPLR 5203. Enforcement tools include the CPLR 5222 restraining notice served on the franchisee's bank, the CPLR 5223 information subpoena, the CPLR 5230 property execution delivered to the sheriff, and the CPLR 5225(b) turnover proceeding against third parties holding the debtor's assets. If the former franchisee has handed the location to a new operator running the same business, the successor liability doctrines of de facto merger and mere continuation may reach the new entity.

Franchise fee claims are one species of breach of contract collection, and the same enforcement discipline applies: locate assets early, restrain them before the debtor moves them, and convert paper judgments into payment.

You can contact the Law Offices of Albert Goodwin by phone at 212-233-1233 or by email at [email protected].