Franchise Contract

No-one should enter into a franchise agreement thinking they can walk away from it. It is not as easy at that. You don’t have the right to quit when it suits you. A franchise agreement is a contract like any other. Before signing, both parties make a commitment to work together for an agreed term, usually five years. The Franchisor will have invested time and money into the recruitment process and also into the training of the Franchisee.

They want to see the franchisee put in whatever effort is necessary to make the franchise a success. And they will expect the Franchisee to honour his commitment to pay royalties or management fees due under the agreement during the term. Should you want to terminate the agreement before it expires you would be in breach of contract and the Franchisor could sue for the amount he would have earned had you continued to be a franchisee. This sum could be substantial.

Obviously, things can go wrong. There are winners and losers in franchising and sometimes a Franchisee finds the going more difficult than he initially expected and wants out.

You have two choices: try to re-build the business and stick with it or try to sell it yourself. This won’t be easy if the business isn’t making money.

You would need to get help to turn things around and make the business attractive to a buyer. Either way you need to be discussing the issues with the Franchisor at an early stage. The Franchisor will always want to help if they can. It is not good for them to have a franchise fail. Re-selling the territory can be difficult because any new prospect will want to know why it didn’t work for the previous Franchisee.

The situation is different, of course, if the Franchisor is at fault. For example, if there is a fundamental flaw in the business system which prevents every franchisee in the network from being successful, or if the Franchisor is not providing the support or service the Franchisee is entitled to, then the Franchisee may have the right to terminate the agreement—without paying penalties.

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