You’ve just signed up the next 5 years of your life to managing and operating a franchise. It seemed like a great idea, the people you were negotiating with were nice, you liked the products and services you sold and your customers were great. However, a couple of weeks down the track you realise just how much of a commitment this will be. You don’t know if it will be worth it. You decide to get out of it. But you’ve signed a contract. What should you do?
Luckily for you, we have expert franchise attorneys that can assist you. They’ll be able to tell you that any franchise agreement needs to have a cooling off period.
Do you have a Cooling off period?
If you have already signed your franchise agreement, you will generally be able to exercise your right to terminate the agreement within the “cooling off period”.
You’ve probably come across this term before. It’s a specific time period within which you may exercise your right to terminate the franchise agreement. Generally, for a franchise agreement the cooling off period is 7 days. Sometimes a franchisor will give you more, but 7 days is the minimum.
Any deposits that you have paid to the franchisor within this time will be refunded to you. However, any expenses that the franchisor may have incurred in order to train you within this 7 day period may not be refunded to you.
Do you have any remaining obligations after terminating during the cooling off period?
You will be released from most of your obligations under the franchise agreement if you terminate it during the cooling off period. However, you may still be subject to certain confidentiality provisions and be required to uphold the intellectual property rights of the franchisor even after termination.
This is because some franchisors require potential franchisees to sign the franchise agreement before letting the potential franchisees review any confidential documents, such as operating manuals and the franchisor’s financial statements.
For this reason, our franchise attorneys suggest that you understand your obligations in terms of non-disclosure of the franchisor’s confidential information, and are aware of the franchisor’s intellectual property rights so that you do not breach these obligations after the cooling off period. If you are unsure of what your obligations are and how they apply to you, it is a good idea to get in touch with a franchise attorney to have these issues explained to you in detail.
What if the cooling off period has passed?
If you have been operating the franchise business for more than 7 days, you must closely review the terms of the franchise agreement in order to figure out what your options are regarding termination.
For example, before signing the franchise agreement the franchisor may have provided you with financial statements guaranteeing you a certain rate of revenue when operating the franchise. After operating the franchise business for a few months, you may not be receiving this rate of revenue or income from the business and you may want to terminate the agreement.
Another scenario may be where you have operated the franchise business for a few years and are no longer able to commit the time and resources to maintaining the business. Neither you, nor the franchisor, have breached your obligations under the agreement but you would like a change of scenery and would like to stop operating the franchise business.
So, what can you do?
The terms of the franchise agreement itself and the Franchise Code of Conduct will largely determine your options. It is a good idea to get a franchise attorney to review your agreement to figure out what the best options may be for you according to the agreement and general franchising law.
Some general considerations to make before speaking with a franchise attorney include:
- Are there terms in the franchise agreement outlining in what circumstances you can terminate the agreement? If so, do these circumstances relate to your current situation?
- Would you consider selling the franchise business? If so, consider the transfer and assignment clauses in your franchise agreement.
- Are you in a dispute with the franchisor? If you want to terminate the contract because of a dispute with the franchisor, you may be required to undergo dispute resolution procedures before terminating the franchise agreement.
Changes to the law…
From 2015 onwards there are going to be big changes to franchise law. One of the most significant changes for potential franchisees is the fact that, prior to signing the franchise agreement, the franchisor will need to give the potential franchisee an information statement. This document will need to set out the risks and potential rewards of operating the franchise business. In addition to this information, new provisions have been put in place so that a franchisor will no longer be able to prevent a potential franchisee from speaking to an ex franchisee about the franchise business. These are only some of the big changes that will come into place. You can have a chat with one of our franchise attorneys if you would like to find out more!
Generally, it is quite difficult for a franchisee to terminate a franchise agreement after the cooling off period. This is because the franchisor would have invested considerable time and expenses in training and setting up the franchise business for you to operate.
As such, our franchise attorneys suggest that you closely review the franchise agreement before signing it, rather than solely relying on the cooling off period to terminate the agreement. If you need help understanding the terms of the franchise agreement, get in touch with us and we can arrange for a franchise attorney to contact you and begin the review process.