Terminating a Franchise Agreement

Let’s face it. The franchise agreement is a fairly one-sided contract that is prepared with great forethought by the franchisor’s lawyers. Once signed, a franchisee is bound by its terms regarding every aspect of the business relationship between franchisee and franchisor. A good franchise attorney is able to help the franchise client fully understand the document and the terms therein. Contained in a franchise agreement is the franchise disclosure document, the parties to the agreement, the territory, operating procedures, allowable sources of inventory, and many definitions such as trademarks and licensing rights, just to name a few.

One of the more commonly overlooked elements of the franchise agreement is the termination clause. No one plans on failing in a franchise business just like no two people plan to get divorced when they first get married, but it happens. A franchise agreement is much like a pre-nuptials agreement between a married couple. The agreement spells out the franchisee’s options if they wish to end the relationship.

The key concept of terminating the franchise agreement is the concept of breach of contract. Usually, a franchisee will have to prove that the franchisor materially breached a specific part of the franchise agreement and vise-versa. The franchisor, on the other hand, will point to any breach that the franchisee may have committed prior to the one claimed by the franchisee. The non-breaching party is the one that will typically be awarded damages.

There is no aspect of your franchise relationship where it is more critical to have a franchise attorney than in the dissolution of your franchise agreement. You need to know your rights and obligations beforehand so that you don’t sign a contract that can come back and haunt you later when you decide that it is time to move on from the business.

Franchise attorney Mario L. Herman works with franchisees to help them understand the franchise agreement’s many terms as well as the termination clause. We advise our clients of their options when they wish to terminate their franchise agreement and walk away from their partnership.