If you own a franchise and you want out, you are not alone. While franchisees often go into business with rose-colored glasses, they often end up jaded, ready to sever their ties with their franchisor and move on.
But is this possible? Can you terminate your franchise and still keep your business?
Generally speaking, the answer is “No.” Most franchisors do not give their franchisees the option to just walk away. Even if you wait until your franchise agreement expires, you may still be subject to various post-termination obligations.
When Can You Get Out of a Franchise?
Whether your franchise is struggling or you are fed up with your franchisor, you may be ready to walk away. But, you might also want to keep your business. After operating under the franchise model for a period of time, many franchisees find that they would be happier—and better off—on their own.
Unfortunately, most franchise agreements contain provisions that prevent franchisees from severing ties. While some franchise agreements allow franchisees to terminate in certain events of default, many are silent on franchisees’ termination rights entirely. This is by design. It keeps franchisors in control, and it helps them avoid mass walk-outs that can threaten their brand’s reputation.
So, when can you get out as a franchisee? While individual circumstances vary, broadly speaking, franchisees’ options for exiting the franchise system are:
- Assert a contractual right of termination based on a franchisor default (if available);
- Assert a statutory right of termination or rescission (laws vary by state);
- Negotiate a mutually agreeable separation; or,
- Wait for the franchise agreement term to expire.
What Can You Expect Post-Termination or Post-Expiration?
Let’s say you are able to get out of your franchise (or you decide to wait out the end of your franchise agreement term). What can you expect post-termination (or post-expiration)?
Most franchisors impose several post-termination obligations through their franchise agreements. Whether you terminate your franchise agreement for cause or allow your franchise agreement to expire, you may be subject to obligations including:
- Non-Competition – Non-competition covenants prohibit former franchisees from operating competing businesses post-termination, usually within a certain geographic radius and for a specific period of time.
- Non-Solicitation – Franchisors also frequently prohibit their franchisees from soliciting former customers post-termination. The idea behind these provisions is that these are customers of the franchised brand and not of the individual franchisee.
- De–Branding – Even if you are able to continue operating a business post-termination, you will be required to completely de-brand. This will entail replacing signage, replacing other branded items, and removing any furniture or equipment that is part of the franchisor’s trade dress.
Having Problems with Your Franchisor? Contact Attorney Jeffrey M. Goldstein
If you are having problems with your franchisor, attorney Jeffrey M. Goldstein can help you evaluate your options and choose the best path forward. Depending on your circumstances, Mr. Goldstein may be able to help you negotiate an exit that allows you to continue operating your business. For a free and confidential consultation, please call 202-293-3947 or get in touch online today.