How to terminate a franchise agreement?

Terminating a franchise agreement is never a decision taken lightly. Whether it is due to a life change, a dispute with the franchisor, or a professional opportunity, ending this type of commitment follows specific rules.

How to terminate a franchise agreement?

Starting a business through franchising can be a once-in-a-lifetime professional adventure. While many find it rewarding, some choose, at some point, to end their franchise. How can this be done to avoid any accusations of wrongful termination? Here are the best practices to know.

Anticipate the Term to Avoid Automatic Renewal

Most franchise agreements are signed for 3, 5, or 7 years, with automatic renewal at the end of the term. In such cases, it is generally enough to notify the franchisor, within the stipulated time frame, of your intention not to renew.

If the duration is indefinite, a "reasonable" notice period must be respected to allow both parties to organize accordingly.

Who Can Initiate Termination?

Franchisee Side

A franchisee may request termination for several reasons: a change in professional plans, retirement, loss of interest in the business, or failure of the franchisor to meet their obligations (advertising, support, etc.).

Franchisor Side

The franchisor may terminate the agreement if the franchisee:

  • fails to pay fees,
  • assigns rights without authorization,
  • provides false information that damages the brand,
  • becomes unable to operate,
  • violates the exclusivity clause by sourcing elsewhere.

Procedure to Follow

Terminating a franchise agreement follows a formal procedure. It must be notified by registered letter with acknowledgment of receipt and include:

  • the explicit request for termination,
  • a valid reason,
  • the identity of the parties,
  • the date of sending,
  • any potential resolution period.

After Termination

The franchisee may retain their business but can no longer operate under the brand. They must return all materials, signage, and elements provided by the franchisor, and manage any remaining inventory. The sale of the business may be made to a buyer approved by the franchisor.

In Conclusion

One does not sign a franchise agreement thinking about termination, but including a termination clause from the start can prevent many disputes. As the proverb says: better safe than sorry.

By the editorial team of AfricaFranchise.com