How do I terminate a franchise agreement?

Whether or not you can terminate a franchise agreement depends on its terms. The Franchising Code itself does not provide a right to terminate a franchise agreement. However, it does dictate certain procedures which must be followed when terminating a franchise agreement. 

The procedure to be followed differs depending on whether:

1. The franchisee breached the agreement
2. The franchisee did not breach the agreement
3. There are special circumstances

Breach by franchisee

If you intend to terminate the agreement due to a breach by the franchisee, the Code requires the following steps to be taken:

1. Reasonable written notice is given to the franchisee of an intention to terminate due to a breach.
2. Notify the franchisee of the steps they must take to remedy the breach.
3. Allow the franchisee a reasonable amount of time to remedy the breach (no more than 30 days).
4. If the franchisee remedies the breach, you cannot terminate the agreement.
5. If the franchisee does not remedy the breach, the termination can proceed.
6. If a dispute evolves due to the proposed or actual termination, the dispute resolution procedures must then be followed and mediation may be required.

No breach by franchisee

If the terms of the agreement allow you to terminate before it expires and even if the franchisee has not breached the agreement or consented to termination, the following procedure must be followed:

1. Reasonable written notice is given to the franchisee of termination and the reasons for it.

You may need to seek legal advice about what could be considered reasonable notice in the circumstances. A franchisee may follow the dispute resolution procedures or commence legal action if they disagree with the termination and/or whether the procedure was followed.

Special circumstances

The above requirements of reasonable written notice and an opportunity to remedy are not needed in any of the following special circumstances where the franchisee:

• no longer holds a licence needed to carry on the business
• becomes bankrupt, insolvent under administration or externally-administered
• becomes de-registered (if they are a company)
• abandons the franchise or franchise relationship
• is convicted of a serious offence
• operates the business in a way that endangers public health or safety
• fraudulently operates the business.

It is also unnecessary to follow procedures when the franchisee consents to terminate the agreement.

Takeaway

A franchisor’s ability to terminate depends on the terms of the franchise agreement. However, the procedures to terminate the agreement are outlined in the Franchising Code and depend on whether the franchisee breached the agreement or if there are special circumstances denying the franchisee an opportunity to remedy.

If you would like to speak with our franchise lawyers, just contact us via 1300 337 997 or by filling out the contact form.