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October 14, 2021

What Happens If You Break A Franchise Agreement

Filed under: Uncategorized — Mark Baker @ 8:54 am

Franchisors and franchisees should consider these considerations and be aware of the implications before terminating a franchise agreement. Franchises are complex business models and it may take you some time to deal with all the technical details around. So let`s learn more about the franchise agreement – and whether the contract schedule is set in stone. Franchises are common business models. Most fast food chains, car dealerships, retail stores and service companies operate under the franchise model. Franchisees acquire licenses to open a specific franchise in a specific location. A franchise agreement governs the relevant terms and conditions of both the franshisor (the company) and the individual franchisees/owners. A breach of the agreement may give rise to legal action. If any of these situations occur, the franchisor must inform the franchisee so that they have an opportunity to resolve the issue and prevent termination, in accordance with the British Franchise Association`s Code of Ethics.

If the problem is not resolved, the franchisor can initiate legal proceedings to recover the money the franchisee owes them – either in the form of franchise fees or financial damages. The franchisor operated a mobile franchise network that replaced tires as needed (at the customer`s home or on the side of the road). Here`s an example. We have a franchise concept that involves a chemical process as part of the service that the franchisee must provide to its customers. The new health and safety regulations now make it illegal for the franchisee to use the proprietary chemical (provided by the franchisor), but there is no other product, so the franchisee can no longer run their business. Does the franchise agreement remain in force or can it be legally terminated (even if it applies for a fixed period), thus releasing each party from its respective obligations under the contract? In these circumstances, the common law doctrine of frustration could be used to terminate the franchise agreement. Alternatively, a franchisee may terminate under its common law rights, but only if the breach is so significant that it has substantially deprived the franchisee of the full benefit of the contract. For example, no manuals or training were provided. In practice, however, a franchisor`s “violations” are not as clear and the franchisee`s complaint may have arisen due to the cumulative effect of a number of defects.

Finally, always seek legal advice on your options before taking steps to terminate a franchise agreement to be aware of unintended consequences. Although your options for exiting your franchise agreement will depend heavily on your individual situation, the following four possible options are for franchisees who want to get rid of franchise relationships: The existing franchise agreement will either be awarded to the buyer or, more often, the buyer will enter into a new franchise agreement with the franchisor….

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