How to terminate a franchise agreement
Although a franchisor will give you the tools,...
Although a franchisor will give you the tools, marketing material and network you need to make a success of your new business venture, there are occasions when things might not go the way you planned and you may want to exit the business. This could be due to personal reasons or a change of circumstances, poor financial performance of the business, or difficulties complying with the regulations set by the franchisor.
Check your contract
Whatever your reason for seeking to exit the business, you must understand the risks and process involved to do so in the correct manner. Your contract will detail the termination procedures that apply to your business, including the amount of notice that you need to give, any mediation processes that you should follow, penalties that may apply for early termination of the contract, and the rights of the franchisor to take legal action against you.
You may be able to transfer the franchise
Your franchisor may allow you to transfer the franchise to another party rather than terminating the agreement. If these terms are not expressly detailed in the contract, you should seek clarification on this point if this is the way in which you wish to proceed.
Consider the legal aspects
Exiting a franchise agreement often involves complex legal considerations, and you may wish to employ the services of a franchise attorney to support you in this process. The process may be easier depending on the extent to which your franchise agreement, contractual documentation and state laws document the process for early termination of your franchise agreement and responsibilities.
Mediation may help
Your franchisor may ask you to attend mediation to determine whether there could be a scenario in which you would continue to run your franchise. If you are adamant about exiting the agreement, mediation can help discussions to run smoothly and ease the process.
Legal action could occur
If you breach the terms of your franchise agreement or your franchisor is not willing to allow you to exit the agreement, they may take legal action against you. In this case, to safeguard your personal wealth and reputation, you should engage the services of a franchise attorney to support you in reaching an amicable position.
Choosing to exit a franchise agreement early can be a complicated legal minefield, but by following the termination procedures defined in your contract, working with your franchisor toward an amicable outcome and engaging legal support as required, you stand a good chance of emerging unscathed.