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Failure in Franchising: Termination of Franchise Agreement

Franchise Termination

The franchisee-franchisor relationship should be capable of surviving over a long period of time. However there will be events when the agreement comes to an end. This can happen in a no. of ways:

  • Breakup of the franchise agreement by the franchisor
  • Breakup of the franchise agreement by the franchisee

The interests of both, the franchisee and the franchisor on termination are similar if viewed from a different angle. They both are concerned to safeguard their financial and commercial interests.

Where franchisor will be concerned to safeguard his commercial interests so that he can appoint a replacement franchisee. On the other side, the franchisee will be concerned to recover as much as he can financially.

Agreements which are well-drafted will mention clearly, “What will happen on the termination of a franchise agreement for whatsoever reason”.

Termination for Breach of Franchise Agreement by Franchisee:
In order to end a Franchise Agreement, the Franchisee have to show that the Franchisor has broken a condition of the Franchise Agreement or basically breached an intermediate term; which is neither a condition nor a warranty between the both parties.

Franchisees can end the Franchise Agreement:Franchise Termination

  • Within a week of entering into the agreement
  • By paying non-refundable money during the cooling-off period
  • If the franchise agreement allows them for terminating

The Franchising Agreement allows a franchisor to end a franchise agreement in certain circumstances:

Breach of Contract by Franchisee:
When a franchisor wishes the termination of a franchisee’s agreement to breach the agreement, the franchisor have tot:

  • Give reasonable notice to franchisee that it termination of agreement is taking place because of the breach of “particular” condition.
  • Tell the franchisee what he is needed to do to remedy the breach.
  • Allow the franchisee 30-days time-period to remedy the breach.

If the breakup is remedied within the settled time frame, the franchisor cannot end the franchise agreement because of that breach.

No breakup of Agreement by the Franchisee
The franchisor must consider the grounds for default under the franchise agreement to default the franchisee whereas the franchisee will not have strong grounds to default Franchisor and for termination. Still the franchisee may raise defenses to attempt to excuse the non-performance of its financial obligations.
If termination is not possible, Franchisee is always open to to sue for damages for breach in the usual way and he can also recover damages in the event of a termination.

Special Circumstances-
The Code specifies special circumstances under which the franchisor is able to terminate a franchise agreement without giving the franchisee any prior notice, including when the franchisee:

  • Becomes Bankrupt
  • No Longer Holds A Necessary License
  • Voluntarily Abandons The Franchise
  • Is Convicted Of A Serious Offense
Posted in: Franchise

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