The Franchise Memorandum

A federal court in Virginia recently enforced an alleged “scrivener’s error” that extended the term of a development agreement for one developer, while enforcing notice requirements to uphold a nonrenewal for another developer. Road King Dev. v. JTH Tax, 2023 WL 2090280 (E.D. Va. Feb. 17, 2023). Road King and ZeeDee each entered into a development agreement with JTH, the franchisor of the Liberty Tax network; ZeeDee’s agreement was for a territory previously operated by Road King. Road King’s agreement, entered into in 2014, was accompanied by an Acknowledgment of Early Renewal executed by the parties extending the agreement’s six-year term to ten years. The development requirements, however, only extended to 2020. ZeeDee’s agreement, entered into in 2015, contained no such acknowledgment. The developers fell behind on their development requirements, and JTH sent the developers notices of nonrenewal in 2020 and 2021, respectively. The developers sued the franchisor.

In ruling on cross motions for summary judgment, the court rejected JTH’s argument that the ten-year term described in Road King’s renewal acknowledgment was a “scrivener’s error.” The court concluded that no other documents in the record—including the six-year development schedule—contradicted the apparent amendment of the agreement’s term. Because the agreement required an opportunity to cure prior to termination, and because four years were left on the term at the time of the notice of nonrenewal, the court held that Road King’s agreement was not properly terminated. The court reached the contrary conclusion with respect to ZeeDee, who had sent a renewal request that failed to conform to the agreement’s requirements. Although JTH responded that it would “start working on” the renewal, the court found that it was still entitled to enforce the renewal requirements and deny ZeeDee’s request for renewal.