There are many reasons why you may wish to get out of a franchise agreement early.
You may want to sell your business, or you may want to or need to stop operating your business.
The rights to end the franchise agreement, sell a franchise business or pass a franchised business to a beneficiary are determined by the terms of your franchise agreement and the Franchising Code of Conduct (the Code).
Under the terms of the Code and on the basis that you are not renewing or extending an existing franchise agreement, you can end your franchise agreement within 7 days of entering into your franchise agreement or within 7 days of making a payment under your franchise agreement (known as the cooling off right).
The sale of your franchised business will be determined by the provisions of your franchise agreement. Most franchise agreements contain provisions which will allow you to either sell the franchised business back to the franchisor or sell the franchised business to a third party approved by the franchisor (your franchisor will want to know that anyone taking on the franchised business is a suitable franchisee).
Your franchisor will normally have the first option to purchase your franchised business either at market value or on the terms and conditions set out in your franchise agreement.
If you sell your franchise business to a third party it is likely that you will have to pay a transfer fee to your franchisor. You should be aware of the amount of the transfer fee before you set the sale price for your franchised business.
If you sell your franchised business you will also normally be subject to restrictions such as confidentiality and restraint of trade. These restrictions are designed to protect the franchisor’s goodwill. It is important that you understand these restrictions (including whether the restrictions are enforceable).
Some franchise agreements may allow a franchisee to terminate the franchise agreement in certain circumstances. However it is rare to see a franchise agreement which allows a franchisee to end the franchise agreement early without paying an exit fee or other money to the franchisor.
However, if the franchisor has breached an essential or fundamental obligation under the franchise agreement, a franchisee may still be able to terminate the franchise agreement at general law.
If you have decided to end the franchise agreement or to sell your business we can advise you:
- what rights you have to end your agreement early;
- whether you can terminate the agreement if the other party has not complied with their obligations;
- what you need to do if you want to sell the business;
- whether you are able to operate a similar business after the agreement ends;
- whether there are any clauses of the agreement that apply after the agreement ends.
Contact us and we will set out all the steps that need to be taken to end the franchise relationship or to sell the franchised business.