The franchise agreement is mostly done by the franchisor’s lawyers for a franchisee to sign up. Once a franchisee agrees to the terms of the agreement, they are legally bound by them. In particular, the termination clause is one of the most commonly overlooked sections of the franchise agreement that people don’t pay attention to. Everyone doesn’t think their franchise business will fail, just like no one thinks they’ll get divorced when they first get married, but it does happen. This is very much like a prenuptial agreement between a married couple. When a franchisee wants to break up with the company, the agreement lays out what they can do.
- Carefully read your franchise agreement. The agreement should state under what circumstances either party may terminate it.
- Determine whether the franchisee violated any significant terms of the franchise agreement. Suppose you can demonstrate a material breach of the agreement, such as a lack of support or a failure to deliver necessary supplies on time. In that case, you will have a stronger case for terminating the original contract.
- Recognize the language in the franchise agreement that pertains to simply closing the business and walking away. If you choose that path, you risk facing legal consequences and serious financial difficulties.
- Before attempting to terminate your franchise agreement, consult with an experienced business attorney. A competent attorney can assist you in navigating the occasionally difficult legal waters of termination.
- Notify the franchisee’s owner in writing of your intention to franchise agreement termination and close your franchise. Utilize certified mail, registered mail, or another trackable mailing service such as UPS or FedEx to deliver the letter to the franchise owner.
- Adhere to the procedures outlined in the original franchise agreement when selling or transferring the operation. Consult your attorney to ensure the sale has no legal or financial consequences.
The critical concept in terminating a franchise agreement is a breach of contract. Generally, a franchisee must establish that the franchisor materially violated a particular franchise agreement provision and vice versa. On the other hand, the franchisor will point to any prior breaches committed by the franchisee. Typically, the non-breaching party will be awarded damages.
There is no aspect of your franchise relationship where having a franchise attorney is more critical than when it comes to terminating your franchise agreement. You need to be aware of your rights and obligations in advance so that you do not sign a contract that will come back to haunt you later when the time comes to exit the business.
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