Legal Considerations at the End of a Franchise Agreement 

As a franchisor, reaching the end of a franchise agreement is a significant milestone. You may have reached this point through the agreement’s natural expiration, termination or a mutual agreement. No matter the reason, ending a franchise agreement brings a series of legal considerations you must address. This article will explain several crucial legal considerations for franchisors at the end of a franchise agreement. 

1. Familiarise Yourself With the Franchise Agreement

The first step is to familiarise yourself with the franchise agreement. The agreement’s terms will determine your course of action. You must notify the franchisee about what will happen when the agreement’s term ends, no matter whether you plan to:

• renew the existing agreement; 
• extend the existing agreement;
• begin a new agreement; or
• terminate the agreement. 

If you plan to terminate the franchise agreement, you will need to understand the contents of the agreement’s termination clauses. Within these clauses, you have set out the circumstances under which you or the franchisee can terminate the agreement. They outline the actions you need to take. These actions include providing:

• written notice to the franchisee that you intend to terminate the agreement; 
• a reason for termination; and
• an exit plan. 

2. Dispute Resolution 

There are multiple points in franchise relationships where parties face a higher risk of legal disputes arising. One of these points is towards the end of the franchise agreement. Disputes can occur due to differing interpretations of contract terms, breaches of obligations or general dissatisfaction. 

Ending a franchise relationship can be a complex and emotionally charged matter. For instance, you may find yourself in a dispute over financial aspects or non-compete clauses. There may be assets to untangle, franchise fees the franchisee must pay and procedures to implement for transition.

Dispute resolution mechanisms are avenues for resolving conflicts. A robust dispute resolution framework in the franchise agreement will help you avoid costly litigation. Clear dispute resolution frameworks provide a roadmap for resolving conflicts. They will mitigate the risk of drawn-out disputes. Ensure that you follow this framework should a dispute arise. 

3. After the Franchise Agreement Ends

It is crucial to be aware that specific clauses of the franchise agreement may remain binding even after the franchise agreement ends. For example, even after the formal termination of the franchise relationship, a non-compete clause may continue to be binding. This clause typically restricts the franchisee from engaging in similar business activities that could directly compete with your brand. They are usually in effect for the duration of the franchise agreement and for a set time following its end. 

You can help to protect your business interests beyond the end of the franchise agreement by:

• putting such clauses in place at the start of the franchise relationship;
• proactively reminding departing franchisees of them; and 
• seeking legal advice if you suspect a breach. 

4. Legal Advice

It can be a great idea to seek legal advice regarding the end of a franchise agreement. Franchise agreements end for many reasons, including:

• amicable mutual agreement;
• natural expiration; or 
• an event such as a breach of contract or bankruptcy triggering termination. 

Regardless of the reason for the agreement’s end, a lawyer can guide you on your next steps. 

They can assess your situation, advise you on your rights and obligations and help you navigate the process smoothly. Moreover, legal advice can help mitigate the risk of potential disputes that may arise during or after the end of the franchise agreement. 

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Key Takeaways

Navigating the end of a franchise agreement requires careful consideration. As a franchisor, you should be aware of: 

• your legal obligations;
• the potentially heightened risk of potential disputes; and 
• any post-termination responsibilities.

If you are a new or prospective franchisor, there are several steps you can take in the early stages to ease the end of the agreement process. These include the following: 

• creating a robust dispute resolution framework;
• ensuring the franchise agreement is clear and well-drafted; and
• including reasonable non-compete clauses to protect your business interests. 

As the end of the franchise agreement approaches, you should familiarise yourself with its terms. This contract will dictate the course of action you can take. Your next steps will depend on whether you are terminating your relationship with the franchisee or whether they will remain in your network. In the event of a dispute, you should follow the dispute resolution procedures set out in the franchise agreement. 

Seeking legal advice at this stage is a great idea. A lawyer can offer valuable guidance, helping to mitigate the risk of potential disputes and safeguard your interests. If you would like legal advice about ending a franchise agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.