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Can I terminate a franchise agreement?

On Behalf of | Apr 9, 2020 | Franchise Law

Buying a franchise may have been a great business opportunity when you first signed the contract, but maybe a few years down the road, you realize it is just not for you. Whether you are not making as much of a profit as you hoped or you have decided this type of business environment is not your forte, you want to leave the franchise. But can you?

Franchise agreements are typically thorough and don’t leave a lot of room for negotiation or termination. However, there may be some situations in which you can leave your franchise without causing too much of a financial burden:

  • The franchisor breaches the contract. If the franchisor – the owner of the entire franchise business – did not disclose critical factors about the business or intentionally misrepresents the business, you, as the franchisee, may have grounds to terminate the contract. This can include various situations, such as not informing you about pending litigation, misrepresenting earnings you can expect to make, understating the cost to open the business, or not fulfilling promises made within your agreement.
  • The franchisee transfers or sells the franchise. Your best choice may be to find a buyer to whom you can sell or transfer the business. You can transfer your business to another franchisee or find a new entrepreneur who is eager to acquire your existing franchise territory or business. You should inform your franchisor of your decision to sell or transfer and review your contract to ensure this is a possible route to take.

If neither of these options is a possibility, you may simply have to wait out your contract. While that sounds like an unfortunate solution, you have some choices to make the situation better:

  • Request additional training. Operating a franchise isn’t easy, and you may not have all the skills or tools necessary to function at maximum efficiency. Your franchisor will likely be open to the idea of helping you receive the training you need to run your business more smoothly.
  • Redefine your territory. Many franchises might not perform well if they’re located in the wrong area. If you believe this might be a contributing factor to your franchise’s performance, you can discuss it with your franchisor and see if they are willing to renegotiate your territory and help drive more traffic to your business.

Regardless of whether you are able to terminate your contract or you agree to wait it out, you should consider consulting with a franchise attorney. Franchising contracts can be complicated to navigate and understand, and an experienced franchise attorney can help find a solution that works best for you.