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Franchise exit fees: What to know

On Behalf of | Dec 14, 2021 | Franchise Law |

Every business venture has an element of risk involved – even a franchise agreement with a well-known brand. Opening a franchise may have seemed like a real shortcut to success but everything from the wrong business location to changes in the economic situation of the nation can turn gold into brass.

Whatever the cause, you aren’t making any money with your franchise, and now you want to close shop and start something new. Unfortunately, breaking your franchise agreement may not be easy – especially when it comes to the fees involved.

Read your franchise agreement carefully

In your excitement to get started, you may have overlooked this part of your franchise agreement (and, frankly, the franchisor probably wasn’t too keen on pointing it out). Exit fees can be cost-prohibitive, with at least one physiotherapy franchisor requiring up to a whopping $600,00 to release their franchisees from their obligations.

Some of the most common exit fees you may see include:

  •       Fees tied to the potential loss of business for each year the agreement is cut short
  •       Fees tied to the sale or transfer of the business
  •       Lease surrender costs (if you can’t get out of your lease)
  •       De-branding or de-fitting costs tied to stripping storefronts of their franchise “look”

You’re most likely bound to pay something to get out of your agreement early – which you may expect. However, when a franchisor charges excessive fees that don’t reflect any true losses, they may be overestimating their reach (and their legal footing).

Waiting out your franchisee contract is often the easiest route to take when you want to be done with a franchise – but it’s not always feasible if you’re losing money. Similarly, you may not be able to sell it if the business model isn’t making any money. When you’re in that kind of position, it’s wisest to get some experienced legal guidance.