If you’ve been issued with a breach notice by your franchisor, the worst thing you can do is stick your head in the sand and do nothing, as it may just cost you your business! Unless the breach is sufficiently serious enough to warrant immediate termination of your franchise agreement, you should either take steps to rectify the breach or dispute it through the appropriate formal measures.
Rectify the Breach
The breach notice should set out a) the provision of the franchise agreement or operations manual relied upon by the franchisor and b) the act or actions said to have breached that provision. If this information is not supplied, ask your franchisor for it; it’s essential to allow you to understand the problem.
If it’s an easy fix, this should be done straight away, noting ongoing breaches can affect your ability to sell or transfer your franchise business and, if not rectified, can warrant termination. If it’s not an easy fix, and either you can’t afford to immediately rectify the issue, or you will need to put in place new systems or processes to do so, you should keep your franchisor informed of your plans or discuss with them the best way forward. Showing you took the breach notice seriously and acted on it to the best of your ability will be invaluable to not only improving your business and relationship with the franchisor, but also help your position should the purported breach ultimately lead to a dispute.
Dispute the Breach
If you dispute the breach, it’s important you tell the franchisor of this, and why. It may have been a simple misunderstanding, or you may not have got the whole picture when the breach notice was issued.
Both franchisors and franchisees are now subject to a statutory obligation of good faith, which is likely to include acting in good faith in the issue of, and subsequent dealing with, breach notices. Further, the Franchising Code of Conduct now sets out a dispute resolution procedure that starts with the simple act of communicating with each other, and it is in your interests as franchisee to show that Code was complied with.
Talk to a Franchise Lawyer
If you believe the breach notice was issued for some alternate purpose, for example to lead to a termination, or brings up an issue you believe ought to be addressed by the franchisor, it may be best to talk to a franchise lawyer. They will be able to explain your rights and obligations, and put the franchisor formally on notice of your position.
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