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Can your franchise agreement be terminated early?

| Jun 24, 2020 | Franchise Law |

Opening a franchise of an existing business is a quick way to get your own company up and running. One of the big advantages is that, once you pay your fees, you get to use the established brand’s name and products. You also get the benefit of their (presumably) successful operating system and the ability to trade on their good name for your own profit.

Typically, franchise agreements last for years. If successful, they can continue on for decades. But franchise agreements also require a certain degree of trust. If that falters, one side or the other may want to terminate an agreement early.

Can they do it? Maybe. Here are some things you have to consider:

  1. What does the contract say? A franchise contract is pretty lengthy, and you probably never expected to be in this situation. Go back and read what your contract says so that you understand your rights. When can you cancel the agreement? When can the franchise?
  2. Why is the agreement in jeopardy? Has the parent company failed to live up to its duty to support you? Have you done something that could damage the parent company’s brand? A breach of your contract’s terms can lead to the early termination of a franchise.
  3. How much will it cost you? This question mostly applies to franchisees. You can end up owing early termination fees or having to buy out your agreement if you want to cut yourself free early. You may also lose a lot of money springing for remodeling, new signs and independent advertising once you’re on your own.

Keep in mind that a franchise contract is legally binding. If you end your agreement with the parent company prematurely without good reason, you could be sued. By the same token, you also have legal rights that you can fall back on if the parent company unfairly pulls your franchise license.

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