How To Terminate a Franchise Relationship

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Table of Contents

• When to terminate a franchise relationship
• Conclusion

Has your franchise relationship reached its breaking point? Have efforts to resolve disputes become futile? Do you feel like your franchisor is working against you, instead of with you? Has there been a breach of an essential term in the franchise agreement? Whatever the case may be, your first point of call should inevitably be your franchise solicitor, as he or she will be able to advise you on the most appropriate course of action if this situation ever arises. Your franchise solicitor will be able to guide you on when and how you can terminate a terminate a franchise relationship.

When to terminate a franchise relationship

There are a number of circumstances under which you may terminate a franchise relationship, including the following:

1. The franchisee or franchisor may have breached a term of the franchise agreement and has failed to respond to the franchisor’s notice to remedy the breach within a reasonable time period (not necessarily less than 30 days). In the notice, there should be an explanation of the breach and steps to be taken to address and remedy this breach;
2. The franchisee’s licence (necessary to operate the franchised outlets) may have expired;
3. The franchisee may have entered bankruptcy, become insolvent or gone into administration;
4. The franchisee may have committed a serious offence. If the franchisee is then convicted, the Code may allow for the termination of the franchise agreement;
5. There may be a breakdown in the relationship, which leads to the franchisee’s voluntary abandonment of their obligations for operating the franchised outlet;
6. There is a serious risk of injury, mental or physical, to the customers or the employees of the franchised outlet;
7. The franchisee has acted fraudulently in their management of the business, either by misreporting or misrepresenting information to the franchisor, employees, or clientele of the franchise business; or
8. An agreement to terminate the franchise relationship has been reached between the franchisor and franchisee.

According to the Code, if any of the situations from (2) to (8) occur, the franchisor may effectively terminate the agreement immediately and without any notice given to the franchisees. For legal advice on how to respond to a notice of termination, or clarification on what kinds of conduct constitute grounds for immediate termination, get in touch with a franchise solicitor.

Further, the Code now prescribes how any disputes are to be handled, encouraging parties to reach mutually agreeable solutions.

Before signing any franchise agreement, you would be wise to have a franchise solicitor look over the termination clause to determine under what circumstances the right to terminate (without any notice requirement or ability to remedy) will be granted to the franchisor. Immediate termination of the franchise agreement is a serious concern, especially if the franchise business is your only source of income.

Conclusion

Have your franchise solicitor review your proposed franchise agreement before you decide to enter so that there is no risk of inadvertently breaching a term of the Agreement that would allow the franchisor to terminate without notice. To speak with a franchise solicitor about the importance of a thorough review of all franchise documents, call LegalVision on 1300 544 755.