The termination of a franchise agreement can be a complex and contentious issue in the world of franchising. Franchisees who are facing termination need to understand their rights and the defenses available to them. However, it is equally important for them to choose the right legal representation to navigate these challenging waters. In the blog below, we will review the situations when a franchisor can terminate a franchise agreement and the actions franchisees should consider taking in these situations.
What Is a Franchise Agreement?
A franchise agreement is a legal agreement between two parties, the franchisee and the franchisor. These contracts give the franchisee the right to operate a business and distribute, as well as sell, the services and goods in the market. In return, the franchisee gives consideration to the franchisor, which makes the contract legally binding. However, under this contract, both parties must adhere to the clauses related to the agreement’s terms, amounts, obligations, and conditions.
Can The Franchise Be Taken Away?
In a typical franchise agreement, the relationship between the franchisor and the franchisee can end in one of two ways:
- The franchise agreement can expire at the end of an initial or renewal term or
- One party, likely the franchisor, can terminate the agreement before it ends
Although there are various reasons why a franchise agreement can be terminated, some of the more common reasons include the following:
- If fees are not paid and multiple offenses have occurred, the franchisor may terminate the agreement.
- If the franchisee offers incorrect information or does not provide the requested records indicated in the franchise agreement, the franchisor may terminate the agreement.
- If the franchisee has engaged in activities that a franchisor believes will damage the brand, the agreement may be terminated.
- If a franchisee abandons or neglects the franchise, the contract may be terminated.
- If the franchisee fails to comply with the standards of the franchisor’s requirements in the contract, the contract may be terminated.
In addition, other types of franchisee agreement breaches and insolvency can also result in the removal of a franchise. However, as a franchisee, you have rights. For instance, if the franchisor has breached its part of the agreement or forced you to close the business without having a good cause, you may be able to fight back.
What To Do If You Suspect the Franchisor Will Terminate the Franchise Agreement?
Timing is crucial if you believe a franchisor wants to terminate the franchise agreement.
For example, history has shown that many wrongful terminations can be predicted and prevented. In most termination situations, franchisors may begin the process by sending a warning or default letter, setting up franchisees for eventual termination.
To make matters worse, in some cases, there is no specific reason for this contract termination, and the location is usually abandoned. That is why, if you feel dissatisfaction with the franchisor or believe issues are brewing, you should react promptly and contact an experienced franchise attorney.
Contact FortmanSpann Today To Learn About Your Rights
FortmanSpann is one of the few law firms in the United States that is experienced in franchise law and focuses on representing the rights of franchisees. Our skilled and dedicated legal team represents franchise clients throughout the United States in various State and Federal Courts, arbitrations, and mediations. We have successfully handled cases that other attorneys have declined and have the skills and experience required to support franchisees in various business matters and disputes.
To learn more about your rights regarding a franchise agreement termination, contact FortmanSpann today to speak with our skilled and dedicated legal team.