BIG CHANGES TO VIRGINIA FRANCHISE LAW TAKE EFFECT

A few significant changes to Virginia franchise law took effect July 1, 2026.  Here is a quick summary of the changes.

Post-Term Non-Competes Prohibited

The biggest change adds a new subsection to §13.1-563 of the Virginia Retail Franchising Act (the “Act”).  It is now unlawful for any person, in connection with the offer or sale of a franchise in Virginia, to offer or enter into a franchise agreement that restricts a franchisee’s right to engage in the business of offering, selling, or distributing goods or services at retail after the franchise agreement terminates or expires. In practical terms, this means that franchise agreements with franchisees operating or intending to operate in the Commonwealth of Virginia may no longer contain post-term non-compete restrictions. This is a broad prohibition covering restrictions triggered both by termination and expiration of the franchise agreement.

One Exception to the New Prohibition

The new law includes one important exception. If a franchise owner voluntarily sells the franchise at a mutually agreed-upon price—whether to a third party or back to the franchisor—the sales transaction may include a non-compete restricting the selling franchisee from engaging in a competing retail business for a period of no more than two years after the sale (Va. Code § 13.1-563(B)).

This is intended to be a narrow exception and will be construed accordingly. It applies only when there is a voluntary sale at a mutually agreed-upon price. It does not extend to franchisor-initiated terminations, non-renewals, or expirations where no sale occurs. Franchisors and purchasing franchisees should also note that the two-year cap is shorter than the 3-5 year durations typically seen in existing agreements or traditional business sale transactions.

Other Protections Remain Available

The new law does not affect non-solicitation provisions, confidentiality and non-disclosure requirements, trade secret or other intellectual property protection tools and strategies.  Franchisors will need to review their template agreements and internal practices and make appropriate adjustments to maximize these protections in the absence of post-term non-competes.

Virginia Governing Law Provision Required in Franchise Agreements

Another substantive change adds a new subsection D to § 13.1-559 providing that any franchise contract or agreement offered or entered into under the Act shall be governed by the laws of the Commonwealth of Virginia. This is a significant development for out-of-state franchisors that have historically designated the law of their “home” state as the governing law in their franchise agreements. For any franchise within the scope of the Act that is entered into on or after July 1, 2026, and contemplates a franchised business located in Virginia, Virginia law will now govern the contract, regardless of any contractual choice-of-law provision to the contrary.

Existing Agreements Do not Need to Be Amended Until Renewal

One bit of good news to franchisors is that the new law expressly provides that nothing in the Act shall be construed to alter, modify, or impair any contract entered into, extended, or amended prior to July 1, 2026. Franchise agreements already in place before July 1, 2026 are therefore protected.

However, the use of the words “extended” and “amended” suggests that any extension or amendment of an existing franchise agreement occurring on or after July 1, 2026, could bring the entire agreement within the scope of these new requirements. Franchisors should plan to update their template agreements in anticipation of upcoming franchise agreement renewals and amendments for Virginia franchisees, as well as Virginia franchise registration renewal and amendment timelines.

Remedies and Enforcement

Because the post-term non-compete ban and the governing-law mandate are embedded in the Act’s existing enforcement framework, violations carry the same consequences as other violation of the Act which include: (i) revocation or refusal to renew a franchise registration; (ii) imposition of civil penalties of up to $25,000 per violation, and (iii) the issuance of injunctions. In addition, franchisees retain private civil remedies, including actions for damages and recovery of reasonable legal fees.

Helpful Guidance from the Division of Securities and Retail Franchising

The Division of Securities and Retail Franchising recently issued guidance addressing franchisors currently in the process of updating their franchise disclosure documents and franchise agreements for the current cycle, many of whom have already filed or will soon file amendment applications in Virginia. The Division has also addressed franchisors whose registrations were approved prior to July 1, 2026, but do not expire until after that date. Franchisors have two options:

(i) Franchisors that do not anticipate selling any franchises in Virginia before their current registration expires may defer the required amendments until renewal, at which time the necessary changes must be incorporated.

(ii) Franchisors that anticipate making, or that will in fact make, any franchise sales in Virginia on or after July 1, 2026, must submit an amendment application to the Division in advance of doing so and must ensure that all franchise disclosure documents provided to prospective Virginia franchisees on or after that date include the required language addressing the new statutory provisions.

Takeaway Tips

Franchisors with Virginia franchisees or those contemplating franchise sales in Virginia should take the following steps:

(i) Update Virginia addenda to add language removing all post-term non-compete clauses from franchise agreements, including provisions triggered by termination, expiration, or non-renewal of the franchise agreement.

(ii) Confirm that the Virginia addendum to your franchise agreements (or the base agreements, if no separate addendum exists) designates Virginia law as the governing law and does not incorporate a choice-of-law clause pointing to another state.

(iii) Ensure that franchise agreements contain strong confidentiality, non-disclosure, non-solicitation, and trade secret provisions that survive termination or expiration of the franchise agreement.

Reach out to Perkins Law if you have questions about Virginia franchise compliance, contracts, or transactions.