Ending a franchise agreement
Franchise agreements won't always last their full term - they can get cut short for a number of reasons.
Franchisees are able to transfer their franchise agreements to another person. The franchisee must first make a written request for the franchisor’s consent to the transfer. A franchisor cannot unreasonably withhold consent. The franchisor will be taken to have consented to the transfer if it doesn’t object within 42 days of the request.
Franchisor insolvency can affect franchisees in different ways. For example:
- if the franchisor holds the head lease on your premises, you may lose your right to occupy the premises
- if the franchisor (or an associated company) supplies your stock, you may be unable to obtain stock
- you may lose your right to use the brand
- the franchisor may no longer be able to provide marketing and training support
- you may be required to continue to pay royalties and other fees even when the franchisor goes into administration (as long as the administrator continues to meet the franchisor's obligations)
- you may have to continue making payments to suppliers, landlords, employees and banks even if you can no longer operate your franchise.
Before buying a franchise, you should look at the franchise agreement to see if it says anything about franchisor insolvency. Also talk to a lawyer to clarify what your rights and responsibilities would be if the franchisor did go under.
Franchisees can terminate their franchise agreements
- within seven days of entering into the agreement or paying any non-refundable money (the cooling-off period)
- where their franchise agreement allows them to terminate.
The Franchising Code allows a franchisor to terminate a franchise agreement in certain circumstances.
Breach by franchisee - if a franchisor intends to terminate a franchisee’s agreement for breaching the agreement, the franchisor must:
- give the franchisee reasonable notice that it proposes to terminate the agreement because of the breach
- tell the franchisee what it needs to do to remedy the breach
- allow the franchisee a reasonable time (up to 30 days) to remedy the breach.
If the breach is remedied within the prescribed timeframe, the franchisor cannot terminate the franchise agreement because of that breach.
No breach by the franchisee - a franchisor may have a right under the terms of the franchise agreement to terminate the agreement before it expires, even though the franchisee has not breached the agreement or consented to the termination.
A franchisor intending to terminate an agreement on this basis must give the franchisee reasonable notice of the proposed termination and the reasons for it.
Special circumstances - the Code outlines special circumstances in which the franchisor is able to terminate a franchise agreement without having to give the franchisee any notice, including where the franchisee:
- no longer holds a necessary licence
- becomes bankrupt
- voluntarily abandons the franchise
- is convicted of a serious offence.
If you have a dispute about a proposed termination of a franchise agreement, you can use the Code's dispute resolution procedure.