Changes to the Virginia Retail Franchising Act Effective July 1, 2026
Virginia franchisors and franchisees should pay close attention to important amendments taking effect on July 1, 2026. The changes do not merely adjust wording in a disclosure document. They alter how franchise agreements for Virginia franchises must be structured, how post termination restrictions should be handled, and how state specific franchise compliance must be approached going forward.
In practical terms, Virginia is taking a clearer policy position on two issues that matter a great deal in franchising: governing law and post term retail competition. For brands that register or renew in Virginia, and for franchisees evaluating what rights they will have at the end of the relationship, these changes deserve immediate attention.
Two targeted amendments with meaningful real world consequences
During the 2026 legislative session, Virginia amended the Virginia Retail Franchising Act in two important ways. First, the Act now states that any franchise contract or agreement offered or entered into under the chapter shall be governed by the laws of the Commonwealth. Second, Virginia added a new unlawful offer provision making it unlawful to offer or enter into a franchise agreement that restricts a franchisee from engaging in the retail business of offering, selling, or distributing goods or services after termination or expiration of the franchise agreement.
Virginia also created a narrow exception. If a franchisee sells a franchise at a mutually agreed price to a third party or back to the franchisor, that sale may include a restriction on retail competition for no more than two years after the sale. That means Virginia did not ban every restrictive covenant that may appear in every franchise related transaction. Instead, it drew a line around the post termination or post expiration retail restriction in the ordinary franchise agreement setting, while leaving room for a limited sale based restriction in a buyout or transfer context.
This is a meaningful policy choice. It suggests that Virginia is not treating the franchise relationship as simply another business to business contract where the parties are always free to allocate risk and restrictions as they wish. Instead, Virginia is saying that for franchises covered by the Act, certain post relationship restraints and choice of law provisions are matters of state policy, not just private drafting preference.
New Governing Law Rule
For franchises located in Virginia, the agreement offered or entered into under the Act must be governed by Virginia law.
New Post Term Restriction Rule
A franchise agreement cannot restrict the franchisee from engaging in retail business after termination or expiration, except for a limited sale related carveout of up to two years.
This is more than a disclosure update
Some legal changes can be handled with a quick addendum and a revised receipt page. This is not one of those changes. The new Virginia language affects core contract architecture and directly reaches provisions many franchisors historically viewed as standard, especially choice of law clauses and post term noncompetition language. That means brands should not treat this as a simple filing note. They should review their Virginia addendum, their base franchise agreement, Item 17 summaries, default language, transfer language, termination provisions, and any operational documents that assume an enforceable post term retail noncompete in Virginia.
Contract Drafting
Base documents and state addenda may need to be reworked, not merely annotated.
Sales Compliance
If a brand will sell in Virginia on or after July 1, 2026, the FDD needs the required language first.
Enforcement Strategy
Brands may need to rely more heavily on trademarks, confidential information, non solicitation language, and system controls.
How this can affect Virginia franchisors
For franchisors, the governing law amendment is a direct challenge to the common practice of using a home state governing law clause across the entire system. Many franchise systems prefer to use the law of the franchisor’s principal office state for consistency, internal administration, and familiarity with their counsel’s drafting framework. Virginia’s amendment narrows that approach for Virginia franchises. If the franchise is located in Virginia and offered or entered into under the Act, Virginia law must govern.
The post term restriction change may be even more disruptive. Many franchise agreements historically included noncompetition provisions that apply during the term and after termination or expiration. Those provisions are often justified as necessary to protect goodwill, brand standards, confidential know how, customer relationships, and the integrity of the network. In Virginia, franchisors now need to separate what they believe is good system protection from what Virginia will permit in the retail franchise setting after the relationship ends.
This does not mean franchisors are left without protection. It does mean they need to use more careful tools. A stronger brand may need tighter trademark controls, better confidential information provisions, more thoughtful customer data handling, more precise in term covenants, stronger deidentification requirements, inventory and transition protocols, and cleaner transfer and repurchase mechanics. In other words, Virginia may push franchisors to protect the system through targeted contract design rather than broad post relationship retail bans.
- Review governing law provisions for Virginia franchise agreements
- Revise Item 17 summaries and any Virginia addendum language
- Remove or narrow post term retail competition language for Virginia deals
- Revisit transfer and repurchase language tied to the two year sale carveout
How this can affect Virginia franchisees
For franchisees, these changes may significantly affect bargaining leverage, risk assessment, and post exit planning. A Virginia franchisee is less likely to be forced into litigating key contract questions under another state’s law simply because the franchisor is based elsewhere. That matters because governing law provisions shape how courts interpret covenants, remedies, notice obligations, termination rights, damages provisions, and public policy based defenses.
More Predictable Local Law
Virginia franchisees may have more confidence that their agreements will be interpreted under Virginia law rather than a distant franchisor friendly forum law provision.
Greater Exit Flexibility
A franchisee winding down, exiting, or facing termination may have more room to continue in retail business after the relationship ends, depending on the structure and facts.
Transfer Nuance Still Matters
The new law still allows a limited sale based restriction for up to two years in a mutually agreed transfer or repurchase setting.
That said, franchisees should not assume the new law eliminates every meaningful post relationship obligation. A former franchisee may still face obligations involving deidentification, return of manuals, transition of telephone numbers, protection of trade secrets and confidential information, customer records, settlement terms, trademark cessation, and potentially narrow covenants that do not fall within the prohibited language as interpreted in a future dispute. The practical lesson is not that every restraint disappears. The practical lesson is that the old assumption that a standard post term retail noncompete would automatically remain part of the Virginia package is no longer safe.
Franchisees should also recognize that the new statutory language may produce fresh interpretation disputes. Questions can arise about what it means to engage in the business of offering, selling, or distributing goods or services at retail, how the rule applies to mixed use businesses, what happens in e commerce or hybrid service models, and how a court will separate a prohibited retail restriction from other valid protective covenants. Those questions will likely be shaped over time through drafting practice, regulator expectations, and future litigation.
Why this is different from the standard employer noncompete conversation
It is tempting to view this new Virginia franchise rule as simply another example of the broader national attack on noncompetes. There is some truth in that. But franchise restrictions and employment noncompetes are not the same thing, and they should not be analyzed as though they arise from identical relationships.
In the employment context, Virginia has already restricted noncompetes for certain categories of workers. Virginia law prohibits employers from entering into, enforcing, or threatening to enforce covenants not to compete with low wage employees, and the statute was broadened in 2025 to reach non exempt employees as well. That employee focused statute exists within a labor and employment framework, where courts and lawmakers often evaluate bargaining power, worker mobility, compensation, and the relationship between the individual worker and the employer.
Franchising is different. Franchisees are typically independent business owners who invest capital, operate under a licensed system, and take on ongoing obligations connected to trademark use, brand standards, territory rights, system know how, and customer facing goodwill. For years, franchisors often argued that this justified broader restrictive covenants than would be appropriate in ordinary employment. Virginia’s 2026 amendment does not say franchising and employment are the same. But it does show that Virginia is willing to treat certain post relationship retail restrictions in franchise agreements with skepticism even in a business ownership context.
Employment Context
The focus is often on worker mobility, compensation level, and the reasonableness of restrictions imposed by an employer on an employee.
Franchise Context
The focus includes brand protection, system integrity, licensed trademarks, customer expectations, and the end of a branded retail relationship between independent business parties.
Part of a larger shift, but still a franchise specific move
Nationally, restrictive covenant law has been moving toward closer scrutiny, narrower drafting, and more statute specific exceptions. Some states have imposed salary thresholds or broad worker protections. Others have invalidated certain covenants in specific industries. At the federal level, the FTC attempted a broad noncompete rule, but the FTC now states that the rule is not in effect and is not enforceable. That leaves businesses operating in a state by state landscape rather than under a single nationwide federal ban.
Virginia’s 2026 franchise amendment fits within that broader movement toward narrower post relationship restraints, but it does so in a targeted way. It does not enact a blanket prohibition on all business restrictions. It does not collapse franchise law into employment law. Instead, it addresses a particular category of retail franchise agreement restrictions and a particular choice of law issue for Virginia franchise relationships.
National Theme
Broader skepticism of noncompetes and a move away from assuming they are routine or automatically enforceable.
Virginia Theme
State policy is becoming more explicit both in employment restrictions and now in the franchise context.
Practical Theme
The more a system depends on one size fits all forms, the more careful it now needs to be with Virginia specific drafting.
What Virginia registrants should be doing now
According to the guidance circulated by Virginia’s Division of Securities and Retail Franchising, franchises registering or renewing on or after July 1, 2026 must include language addressing these statutory changes in the FDD and franchise agreement, whether in the relevant text of the FDD, including Item 17, or in a Virginia addendum. The Division also recognized that some registrations will remain active beyond July 1, 2026 because they were renewed earlier. For those brands, the practical question becomes whether a Virginia sale will occur after the effective date and before the current registration expires.
If the answer is yes, waiting until renewal may be too late. In that situation, an amendment should be submitted before the sale so that the Virginia prospect receives an FDD that includes the required language. This is a reminder that state registration compliance is not just about calendar dates. It is also about what the franchisor expects to do in the market during the remaining life of the current registration. Many brands planning to renew in April / May will likely also decide to implement changes now to minimize disruption.
If No Virginia Sale Is Expected Before Renewal
The brand may wait until renewal to include the Virginia specific revisions, but that assumes the no sale assumption remains true.
If a Virginia Sale May Occur After July 1, 2026
An amendment should be filed first so the Virginia prospect receives the revised disclosure before the offer or sale proceeds.
What questions are likely to come next
As with many new statutes, the first wave of questions will not be purely academic. They will arise in drafting rooms, registration comments, failed transfers, terminations, disputes over successor operations, and negotiations over franchise exits. Franchisors will ask how much system protection remains available. Franchisees will ask what freedom they really have after expiration or termination. Lawyers will ask how this provision interacts with trademarks, confidential information covenants, deidentification obligations, injunction clauses, and negotiated separation agreements.
Drafting Questions
How should agreements distinguish prohibited retail restrictions from other valid protections?
Dispute Questions
How will courts treat hybrid covenants, service based models, and digital business channels connected to a retail franchise?
Business Questions
Will brands revise territory strategy, repurchase rights, or post term transition requirements in response?
The safest takeaway is that Virginia franchisors should not assume their existing forms remain clean simply because they worked last year, and Virginia franchisees should not assume every old restriction remains automatically enforceable after July 1, 2026. This is a good moment to review documents carefully, update state specific language thoughtfully, and align contract strategy with the direction Virginia law is now taking.
Virginia franchise compliance now requires a closer look at both the FDD and the agreement
If your franchise system is registered in Virginia, renewing in Virginia, or expects to sell in Virginia after July 1, 2026, it is a good time to review your governing law language, Virginia addendum, Item 17 disclosures, transfer provisions, and post term restriction framework.
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