Terminating a franchise needs almost the same effort that is needed to start one. To lower your risks at termination, it is better to consult a specialized lawyer even before you sign the franchise agreement. However, an experienced franchise lawyer can help you with the necessary legal procedures for canceling a franchise agreement, and also handle any complications that may arise.
How you can terminate
You can sell, transfer or withdraw a franchise from the market to terminate it. This can be done with the mutual consent of the franchisee and franchisor or by either of them, depending on various reasons.
Mutual termination – A number of reasons can lead to mutual termination.
• When the franchisee and franchisor both do not want to renew the franchise agreement, it becomes a mutual termination.
• When the business cannot run in an unsuitable site or location or in unfavorable situations like war, floods or other natural calamities, it becomes a mutual termination.
• In case of insanity, illness or death of a franchisee, it is considered a mutual termination.
Termination by franchisor – The franchise can be terminated by the franchisor at the time of renewal, provided he has a legitimate cause. The franchisor can terminate the business when it is proved that the franchisee has broken the rules time and again. If the franchise is being terminated because of bad business practices like – bankruptcy, failing to pay dues, not adhering to the operations manual etc, the franchisee has to serve the notice period, which gives him time to rectify any misdemeanors.
But in cases where the franchise has been abandoned, or has become a hazard to the public and when the franchisee faces criminal charges, there is no need for a notice period. However, it is better to have a franchise lawyer review the situation in such cases, to make sure that termination is genuine.
Termination by franchisee – Usually, a franchise termination insinuated by the franchisee may attract him some penalty. But if a termination is due to genuine and legal causes, the penalty may be waived. Instances when franchisee can terminate the business are –
• Franchisor fails to meet the promises
• Franchisor gives false information about the business
• Unacceptable changes to the agreement and the operational manual
• Bankruptcy of the franchisor
Besides the above, there can be other instances where the franchisee can opt to terminate the business depending on the specific laws and rules of the province. In any case, it is advisable that you consult your franchise lawyer to avoid complicated situations.
Reviewing the agreement
To be clear about the specific terms and conditions related to your franchise termination, read the franchise agreement carefully. If the agreement has a particular procedure for terminating the franchise, make sure to read the instructions to keep yourself safe from any legal consequences.
Once you are clear, contact the franchisor to inform about your intentions. In case of sale or transfer of the franchise to a third party, follow the necessary policies and rules. But, whatever the reason for terminating your franchise, a franchise lawyer can be very helpful throughout the termination procedure.
Jonathan R. Bailey has extensive experience in writing and advising on legal issues – he has worked closely with several with divorce and franchise lawyers throughout his career.