A franchisee may have legal cause to terminate a franchise without incurring penalties from a franchisor.
The determining factor may be what you agreed to in your franchise agreement, which hopefully you had reviewed by a franchise lawyer before signing it.
The most straightforward reasons to terminate a franchise are covered on our page dealing with the termination of a franchise by mutual consent.
A franchisee may have the right to Terminate a Franchise in the following instances:
Note: The above are guidelines and laws may differ in various countries or states. Consult with a franchise lawyer to advise on applicable laws in your area.
The first course of action for a franchisee who wants to terminate an agreement, may be to contact the relevant franchise association in his country (if the franchise is a member of the association).
They may offer a mediation service which can settle a dispute between franchisor and franchisee or assist the franchisee to terminate a franchise.
Alternatively the franchisee will need to consult with legal counsel or a franchise consulting company, especially if the franchisee seeks to recover damages from the franchisor.
The franchisee also needs to clarify how future trade restrictions will affect him after the termination of a franchise.
If the franchisor wants to terminate a franchise, proper legal procedure must be followed. The law makes provision for notice periods and specific situations where the franchisee must be given the opportunity to remedy a breach.
It is advisable to terminate a franchise in a structured and orderly way to ensure a clean break, with no further obligations to the franchisor.