As of July 1, 2026, Virginia’s Retail Franchising Act (“the Act”) arms Virginia-based franchisees with two powerful new protections.
First, it is now unlawful to offer or enter into a Virginia franchise agreement that bars the franchisee from engaging in retail business after the agreement is terminated or expires. The one exception applies when a franchisee sells the franchise at an agreed price, in which case the sale may keep the seller out of retail for up to two years.
Second, Virginia law must govern the franchise agreement. In practice, this means that franchisors can no longer handpick their preferred state law to govern the franchise relationship.
Who the Retail Franchising Act Covers
Virginia has regulated franchise sales since 1972 through the Act, which requires franchisors to register with the State Corporation Commission, or qualify for an exemption by Commission rule or order, before offering or selling franchises in the state. The Act covers a written agreement with three features: the franchisee receives the right to sell goods or services at retail under a marketing plan the franchisor substantially prescribes, the business operates in substantial association with the franchisor’s trademark, and the franchisee is required to pay, directly or indirectly, a franchise fee of $500 or more. The statute defines a franchise fee to exclude bona fide wholesale payments for resale inventory and payments at fair market value for real property, fixtures, equipment, or supplies. Notably, the Act applies only when performance of the franchise contemplates or requires the franchisee to establish or maintain a place of business inside Virginia, and a place of business means a building or a franchisor-designated truck or van. The key question for Virginia franchisees is therefore simple: does the franchise agreement concern a branded retail franchise in Virginia? If it does, the Act applies.
Specific Changes in the Amended Act
- Virginia law now governs the agreement. A new subsection, Va. Code § 13.1-559(D), states that any covered franchise agreement “shall be governed by the laws of the Commonwealth [of Virginia].” Franchise statutes in other registration states commonly void contract terms that waive their protections, and courts in those states apply that rule to choice-of-law clauses that would strip franchisees of local rights. Virginia’s new protections go a step further: the entire contract must be governed by Virginia law. So, for example, a governing law clause selecting a state other than Virginia violates the statute in any covered agreement offered or signed on or after July 1, 2026.
- Post-term non-competes are now an unlawful practice. Va. Code § 13.1-563 lists acts that are unlawful in connection with the sale or offer of a franchise in Virginia. The new provision added by the amendment, § 13.1-563(A)(4), forbids offering or entering 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 the agreement is terminated or expires. A franchisor thus violates the Act merely by offering an unlawful contract, regardless of whether the franchisee executes the agreement.
- One exception exists, and it is capped at two years. § 13.1-563(B) permits an otherwise unlawful competition restriction where a franchisee sells the franchise at a mutually agreed price, either to a third party or back to the franchisor. The sale may include a term keeping the seller out of the retail business for up to two years after the sale. The critical distinguishing factor is payment: a franchisee who is paid an agreed price for the business can be held out of the market for two years. This exception therefore does not apply to a franchisee whose agreement was terminated or simply expired.
- Renewals and amendments after July 1 likely trigger the new rules. The Act does not alter, modify, or impair any contract entered into, extended, or amended before July 1, 2026. Critically, however, a renewal, extension, or amendment signed on or after July 1 would likely be governed by the Act as amended because it is a new contracting event.
What Happens When a Franchisor Violates the Act
Under § 13.1-565, a franchisee may declare the entire franchise void when the offer was unlawful. The franchisee must send the franchisor a written declaration, stating the reasons, by registered or certified mail within 72 hours of discovering the violation and no more than 90 days after signing. A franchisee who voids the franchise may then sue under § 13.1-571 to recover damages, plus costs and reasonable attorney fees. Section 13.1-571(c) also voids any provision that requires a person to waive compliance with the chapter, so the exposure cannot be drafted around, although the same subsection preserves agreements to arbitrate disputes consistent with the chapter. A private action must be brought within four years under § 13.1-571(b). The Commission has its own enforcement tools: under §§ 13.1-568 and 13.1-570, it may enjoin violations and may impose a civil penalty of up to $25,000, with each unlawful franchise counting as a separate violation. In short, an agreement that contains a banned covenant gives a Virginia franchisee a short fuse to unwind the deal: written notice within 72 hours of discovering the violation, and in no event more than 90 days after signing.
Key Takeaways
- Franchise agreements covered by Virginia’s Retail Franchising Act and offered or signed on or after July 1, 2026, must be governed by Virginia law, and post-term retail non-competes in them are unlawful.
- Offering a banned clause is itself a violation. A franchisee who signs may void the franchise by sending written notice by registered or certified mail within 72 hours of discovering the violation, and no later than 90 days after signing, and may then sue for damages and attorney fees.
- One exception applies: when the franchisee sells the franchise at an agreed price, to the franchisor or a third party, the sale may restrict the seller for up to two years. The introduced bill also addressed restrictions imposed as part of a settlement, banning them unless a court approved the settlement. The Senate substitute deleted that clause in full, so the enacted law says nothing about settlement restrictions, and whether a restriction contained in a separate settlement agreement falls within § 13.1-563(A)(4) is an open question.
- Contracts entered into, extended, or amended before July 1, 2026, are not affected, but a renewal or amendment after that date likely brings an old agreement under the new rules.
- The Division of Securities and Retail Franchising requires updated FDD language, in Items 17(r) and 17(w) or a Virginia addendum, from every franchisor registering or renewing on or after July 1, and from any franchisor currently selling in Virginia, before any sale closes.
Sources
- 2026 Va. Acts chs. 553 & 554 (HB 69 / SB 240, approved Apr. 13, 2026, effective July 1, 2026), amending Va. Code §§ 13.1-559 and 13.1-563.
- Va. Code § 13.1-557 et seq. (Retail Franchising Act), including §§ 13.1-559, 13.1-563, 13.1-565, and 13.1-571.
- Virginia State Corporation Commission, Division of Securities and Retail Franchising, 2026 Franchise Legislation Notice, Notification of Changes to the Virginia Retail Franchising Act Effective July 1, 2026 (Apr. 14, 2026).
- Virginia Legislative Information System, bill histories for HB 69 and SB 240 (2026 Regular Session), including HB 69 as introduced and the Senate committee substitute of March 9, 2026 (26109317D-S1).
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