Franchise Termination Clause

Invoking the franchise termination clause should be the last resort for a franchisor.

Has the franchisee been given the opportunity to remedy the breach as provided by law?

Or is the offense by the franchisee so severe that the franchisor has no choice but to implement the franchise termination clause in order to protect the brand?!

The franchise may also be terminated by mutual consent as discussed on our Termination of a Franchise page, which will not require a notice period by the franchisor.

Apart from terminating a franchise, the franchisor may choose not to renew a franchise, if given reasonable cause, such as persistent breach of the franchise agreement by the franchisee.

The franchisor must keep record of notices issued to the franchisee of such breach during the initial franchise lifespan to support his refusal to renew.

The franchise agreement must clearly outline the obligations of the franchisee, so there is no misunderstanding as to breach of agreement by the franchisee which may cause the implementation of the franchise termination clause.

Invoking a Franchise Termination Clause - Notice Period Required:

The law may compel the franchisor to give the franchisee time to remedy a breach, and the time allowed may vary from a few days to a few months. Examples of breach:

• Non-payment of monies due.
• Not trading the minimum hours required as per the agreement. This is especially pertinent if royalties are calculated as a percentage of turnover.
• Non-compliance with any laws and / or failure to obtain statutory licenses, insurance, and / or non-payment of taxes or wages.
• Failure to meet minimum staff requirements as per the agreement.
• Non-adherence to the operations manual.

When There is no Notice Period Required to Terminate a Franchise

• Abandonment of the franchise business by the franchisee.
• Conviction of a criminal offence, fraud or bankruptcy of a franchisee.
• If the franchise business is conducted in a way that endangers public health or safety.
• Repeated failure (after initial notice period) to comply with payments of monies due or breach of the franchise agreement.

The franchisor may be torn between closing a problem franchise business and maintaining a presence in a territory, in the hope that the situation may resolve itself.

However, the very presence of such a business is often detrimental to the brand and other franchisees in the group.

Invoking the franchise termination clause may be much more beneficial to the franchise in the long run.

The franchisor is also bound by agreement as to his obligations and breach thereof may give cause to the franchisee to terminate the franchise.

The termination of a franchise should be aimed at protecting the brand, but not be so one-sided as to penalize the franchisee unfairly

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