If you after information about how a franchisor can terminate a franchise agreement then read on.
There are times when the franchisor wants to terminate the franchise agreement before the term of the agreement has ended. There are three situations in which the franchisor can do this:
- If the agreement allows early termination by the franchisor
- If the franchisee breaches the agreement
- Special circumstances
First steps – read the Agreement!
Sorry, no one likes homework but sometime it can’t be avoided. If you are wondering whether the franchisor can end the franchise agreement, the first step is to look at the franchise agreement. It should state the circumstances in which both parties can terminate the agreement. The Franchising Code of Conduct (the Code) sets out the processes that franchisors must follow if they wish to end the franchise agreement in circumstances where the franchisee has and has not breached the agreement. The Code also stipulates the special circumstances in which the Franchisor can terminate the agreement without notice.
The agreement allows early termination
Some franchise agreements allow the franchisor to end the agreement even if the franchisee has not breached the agreement – what is usually called a termination for convenience clause. The Code stipulates that in these circumstances, the franchisor must give the franchisee reasonable notice and provide the reasons for the termination.
If a franchisee breaches the franchise agreement, the franchisor cannot immediately terminate the agreement. They must first take the following steps:
- Notify the franchisee of the breach
- Notify the franchisee of how they can remedy the breach
- Give the franchisee a reasonable amount of time to remedy (or fix) the breach (this doesn’t need to be more than 30 days)
- Notify the franchisee that if they don’t remedy the breach, the franchisee will terminate the agreement
The notification should be in writing. It goes without saying, but we thought we would say it anyway to make the point, that the franchisor cannot terminate the agreement if the franchisee remedies the breach (fixes the problem) within the reasonable timeframe that was stipulated in the franchisor’s notice.
There are limited situations in which the franchisor may terminate the franchise agreement without notice and without giving an opportunity for the franchisee to
remedy. In order for the franchisor to be able to terminate the agreement without notice, two conditions must be met:
- One or more of the special circumstances apply
- The franchise agreement allows the franchisor to terminate the agreement if one or more of the special circumstances apply.
What are the special circumstances leading to termination without notice?
The special circumstances are set out in the Code. They are:
- If the franchisee doesn’t hold a licence that is needed to run the franchised business
- If the franchisee becomes bankrupt or insolvent
- If the franchisee is a company and it becomes deregistered by the Australian Securities and Investments Commissions
- If the franchisee abandons the franchised business or ends the business relationship with the franchisor
- If the franchisee is convicted of a serious offence
- If the franchisee’s business operations endanger public health and safety
- If the franchisee acts fraudulently in operating the franchised business
If you are thinking of terminating your franchise agreement or you are being threatened with termination then give The Contract Company a call, remember, we only deal with contracts. It’s what we do, all day every day.