By: Ben Reed, Partner at Plave Koch PLC
On April 13, 2026, Governor Abigail Spanberger signed into law amendments to the Virgina Retail Franchising Act. In substance, the law makes two significant additions to the existing Act:
- It amends Section 553 of the Act by adding a new subsection that provides that “Any franchise contract or agreement offered or entered into pursuant to the terms of this chapter shall be governed by the laws of the Commonwealth”
- It adds to the list of what is unlawful in the offering or selling a franchise in Virginia the following: “To offer or enter into a franchise agreement that restricts the right of a franchisee to engage in the business of offering, selling, or distributing goods or services at retail after termination or expiration of the franchise agreement”
The new law does not go into effect until July 1, 2026, and it expressly does not impact any existing agreements between franchisors and franchisees, where the franchised location is in Virginia, or any agreement (including renewals or amendments) that is entered before July 1, 2026.
What legal obligations do these new provisions impose on franchisors that sell or have franchised locations in Virginia?
- Before July 1, 2026:
- A franchisor with a current effective registration in Virginia need not do anything with respect to its FDD or franchise offering prior to July 1, 2026
- Any agreement entered into between now and July 1, 2026 is not subject to the new provisions
- A franchisor’s agreements with existing franchisees for franchised locations in Virginia are not subject to the new provisions
- Any renewal or amendment entered into before July 1, 2026 is not subject to the new provisions
- After July 1, 2026:
- According to the Virginia SCC, franchisors must disclose the terms of the new provisions in their Virginia FDD Addendum and modify their agreements for new franchised locations in Virginia via the VA franchise agreement addendum to reflect the requirements of the Act.
As a practical matter, what does this mean for franchisors?
- Because the amendments don’t apply retroactively, the changes to the Act do not modify the existing franchise terms between franchisors and their franchisees with locations in Virginia. In other words, the choice of law and post-term non-competes in those agreements remain enforceable (to the extent they were otherwise enforceable).
- With respect to franchise agreements (and renewals or amendments) entered after July 1, 2026, the practical effect of the law will be that Virginia law will govern the franchise relationship and that franchisors will be unable to include provisions in their franchise agreements that “restrict[ ] the right of a franchisee to engage in the business of offering, selling, or distributing goods or services at retail” after termination or expiration.
- The law provides an exception to the above restriction for situations when “a franchisee sells a franchise at a mutually agreed upon price to a third party or back to the franchisor.” In those situations, the “sale may include a term restricting the right of [the] franchisee to engage in the business of offering, selling, or distributing goods or services at retail for a period of no more than two years after [the] sale.”
What else do you need to know?
- Guidance issued by the Commission on April 14, 2026 indicates both that franchisors registering or renewing after July 1, 2026, “must include language addressing these legislative changes in their respective franchise disclosure document (“FDD”) and the franchise agreement.” But the guidance also advises franchisors that they can meet this obligation by including language “within the relevant items of the FDD itself, specifically Items 17 (r) and 17 (w); or in a Virginia Addendum to the FDD.” In later conversations with the Division of Securities and Retail Franchising, Division staff have indicated that the Division will also require modifications to the VA franchise agreement addendum to address the requirements of the law.
- Franchisors whose registrations or renewals are approved before July 1, 2026 without the updated language in their Virginia Addenda and who intend to continue to offer or sell franchises in Virginia will be obligated to amend their FDDs and file amendments with the Division to reflect this updated language required by the Act.
- Where a franchise sale is unlawful in Virginia, the agreement becomes “voidable” under the Act (Va. Code § 13.1-565) at the franchisee’s option (to be exercised within 90 days of signing the franchise agreement). So, while the amendments make the inclusion of a post-term restriction on operating a business “unlawful” under the Act, it does not render those provisions automatically void. This may not matter (a) if the Division will require a franchisor to remove such provisions from their franchise agreements via the VA franchise agreement addendum as a condition of registration and (b) because the Commission can pursue civil or criminal penalties for (and injunctions to prevent) unlawful sales under the Act.
- The law does not appear, on its face, to impact confidentiality and non-solicitation provisions because it only applies to provisions that restrict a franchisee from engaging in “the business of offering, selling, or distributing goods or services.” Confidentiality and non-solicitation provisions restrict what information a franchisee can use after termination and the customers the franchisee can solicit, but they don’t restrict the franchisee from engaging in business (which a noncompete does).
- The law only applies to provisions that “restrict the right of a franchisee to engage in the business of offering, selling, or distributing goods or services at retail after termination or expiration of the franchise agreement.” The Act defines a “franchisee” as “a person to whom a franchise is granted or sold.” Thus, the amendment on its face does not apply to a post-termination covenant not to compete that an owner, officer, or employee of a “franchisee” enters into with a franchisor because the franchise is not granted or sold to an owner, officer, or employee but to the franchisee entity that those persons own or work for; that suggests that franchisors including a noncompete in a guarantee or separate agreement with the owner(s), officer(s), or employee(s) of a franchisee might not violate the Act.
The law expressly contemplates the use of non-competes where the franchisee sells the business back to the franchisor (or to a third party). That suggests the possibility of using purchase options upon expiration/termination to (a) buy back the business (or business assets) from the exiting franchisee and (b) impose a noncompete as part of that purchase option. Setting a formula for the purchase price in such a provision would facilitate that process and would seem to comply with the language in act about a sale at a “mutually agreed upon price,” although agreed upon well in advance of the actual sale.
Plave Koch’s lawyers are prepared to assist franchisors in navigating compliance with these new aspects of Virginia law. Among other things, this includes reviewing existing agreements to try to lessen the impact of these new obligations (for example, at the time of renewal or a transfer), as well as guidance on how the new Virginia law applies and how it may impact relationships with franchisees in Virginia.