Validity of Franchise Termination Notices
Termination For Breach
Termination No Breach
Termination in Special Circumstances
Validity of Franchise Termination Notices
Frequently franchise disputes arise over the validity of a franchise termination notice issued by the franchisor.
The Franchising Code of Conduct (the Franchising Code) allows a franchisor to terminate a franchise agreement (provided that the franchisor follows the provisions set out in the Franchising Code):
- if you have breached the franchise agreement (Franchising Code clause 27 Termination - breach by franchisee);
- if you have not breached the franchise agreement (in certain circumstances) (Franchising Code clause 28 Termination - no breach by franchisee);
- in certain special circumstances set out in the Franchising Code (Franchising Code clause 29 Notice of termination by franchisor on particular grounds).
[What is the Franchising Code of Conduct?]
If the franchisor does not follow the provisions set out in the Franchising Code, the proposed franchise termination notice is unlikely to be valid.
If you have received a franchise termination notice you should seek advice from an experienced franchise lawyer as soon as possible.
Termination for Breach
A franchisor can terminate your franchise agreement if you have breached the franchise agreement and
- the franchisor has provided you with a valid breach notice;
- the franchisor has given you a reasonable time to remedy the breaches; and
- you have not remedied the breaches within the time specified in the breach notice.
[What is a valid breach notice?]
What is a reasonable time to remedy the breaches?
The Franchising Code provides that a franchisor does not have to allow more than 30 days for a franchisee to remedy the breach.
If you have received a franchise breach notice which provides that you must remedy the breach in a period which is less than 30 days, you should first check the provisions of your franchise agreement to see what the specified period under the franchise agreement is.
If the specified period under the franchise agreement is less than 30 days, or the franchise agreement picks up the wording of the Code that the "franchisor does not have to allow more than 30 days" (and the breach notice complies with the franchise agreement), then a consideration will need to be undertaken of whether the relevant period is reasonable.
Factors to be taken into account in assessing whether any period is reasonable include:
- the type of breach;
- whether you have previously received a notice for the type of breach;
- if the breach relates to outstanding monies, whether you have been given time to pay the outstanding monies before the issuing of the notice.
What if you remedy the breaches?
Clause 27(4) of the Franchising Code provides that if you remedy the breach/es in accordance with the breach notice, the franchisor cannot terminate the franchise agreement for the breach.
Clause 27(4) of the Franchising Code is a penalty provision which means that if the franchisor attempts to issue a termination notice in circumstances where the breach has been remedied, the franchisor may be liable for a penalty of up to 600 penalty units or $187,800.00.
[Penalty Provisions under the Franchising Code]
Termination if you have not breached the Franchise Agreement
A franchisor can terminate your franchise agreement if the franchise agreement allows the franchisor to terminate the franchise agreement in certain circumstances and one of those circumstances has occurred.
For example, if the franchise agreement requires you to obtain a Visa and you have been unable to obtain the Visa, or if the franchise agreement requires you to complete training to the satisfaction of the franchisor and you have not done so.
Termination in Special Circumstances
A franchisor can terminate your franchise agreement in certain special circumstances set out in the Code and your franchise agreement, including if
- you no longer hold a licence that you must hold to carry on the franchised business;
- you become bankrupt or an insolvent under administration or a Chapter 5 body corporate (if you are a company);
- you are deregistered (if you are a company);
- you act fraudulently in connection with the operation of the franchise business;
- you voluntarily abandon the franchise business or the franchise relationship;
- you are convicted of a serious offence; or
- you operate the franchised business in a way that endangers public health or safety.
If the franchisor proposes to terminate your franchise agreement on one of the grounds set out above:
- and your franchise agreement was entered into before 1 July 2021
Subject to the terms of the franchise agreement, the franchisor can issue a termination notice and the franchise agreement can be terminated immediately.
- and your franchise agreement was entered into after 1 July 2021
The franchisor is required to provide you with 7 days' written notice of the termination of the franchise agreement.
In addition, if you dispute the grounds of the proposed termination, you can notify the franchisor of the dispute and commence the dispute resolution process. If there is a dispute raised, the franchisor cannot terminate the franchise agreement until after 28 days from the provision of the proposed termination notice.
Takeaways
Not all franchise termination notices are valid.
If a franchise termination notice does not comply with the provisions of the Franchising Code and/or your franchise agreement, the franchise termination notice may be invalid and you may have rights against the franchisor.
An experienced franchise lawyer can advise you about the options that are available to you.
Disclaimer
The information in this article is general in nature and is not intended to address the circumstances of any person or other entity. Although we do our best to provide timely and accurate information, we do not guarantee that the information in this article is accurate or that it will continue to be accurate in the future.
