It finally happened. You’ve decided that enough is enough, and you are ready for the nightmare of franchise ownership to be over. Your hopes have been dashed. Your expectations have gone unfulfilled, and your franchisor has gone silent as you have struggled to keep up with your monthly expenses.
Unfortunately, this is an all-too-common reality for franchisees in all types of franchise system. Despite the industry-published statistics on franchisee success and the promises your franchisor made before you signed your franchise agreement, building a profitable franchise is not easy. A significant percentage of franchisees close before the initial terms of their franchise agreements expire, and these “failures” are often due to the fact that franchisors fail to uphold their end of the bargain.
So, you are ready to get out. What do you need to know?
What You Need to Know about Terminating Your Franchise
1. Franchise Agreements are Long-Term, Legally-Binding Contracts
For most fed-up franchisees, the initial prognosis is not good. A franchise agreement’s initial term is both a minimum and a maximum, which means that (i) you are bound until the agreement expires, and (ii) when your agreement expires, it is largely up to your franchisor whether you get to renew.
How many months (or years) are left in your franchise agreement’s term? If you are close, you may be able to find a way to wait it out; or, you may be able to use this as leverage in termination negotiations with your franchisor. But, until you are out, you need to remain vigilant about meeting your contractual obligations.
2. Franchisees’ Termination Options are Usually Very Limited.
Non-payment of royalties. Violation of brand standards. Failure to used designated suppliers or make required upgrades. These are just a few of the numerous reasons why your franchisor may be able to terminate your franchise. But, what does your franchise agreement say about termination by the franchisee?
Probably not much. Franchise agreements are almost universally heavily one-sided, and franchisors know that most prospective franchisees have rose-colored glasses. Most prospective franchisees aren’t worried about terminating; and, if they are, they aren’t comfortable broaching the subject with their soon-to-be franchisor. As a result, it is certainly worth taking a look at the termination provisions of your franchise agreement; but, unless they are out of the ordinary, you likely cannot terminate simply because you have been unable to turn a profit.
3. Franchisors Often Fall Short of Their Obligations.
All of this said, franchisors routinely fall short of their obligations. If you can prove that your franchisor breached your franchise agreement, this may provide you with legal grounds (or negotiation leverage) to work your way out. But, if you go this route, you need to be prepared for litigation, and you need to make sure you have a clear understanding of your post-termination obligations as well.
Discuss Your Situation With Franchise Litigation Attorney Jeffrey M. Goldstein
If you are seeking to terminate your franchise, we encourage you to contact us to discuss your options before you make any decisions. Jeffrey M. Goldstein is a national franchise attorney with over 30 years’ experience, and he has represented hundreds of franchisees in negotiations and litigation involving franchise terminations. To schedule a free, no-obligation consultation, call us at (202) 293-3947 or tell us about your situation online today.