We’ll start with the bad news first: Your franchise agreement probably does not give you the right to terminate. Franchisors like control, and this includes deciding why – and when – franchisees leave the system. As a result, most contemporary franchise agreements include plenty of termination rights for the franchisor and none for the franchisee.
Does this mean you are out of options already? Not necessarily.
Four Ways to (Potentially) Get Out of a Franchise Relationship
While your options for getting out of your franchise agreement will be highly dependent upon your unique individual circumstances, the following are four potential options for franchisees seeking to extricate themselves from franchise relationships:
1. Assert Your Right to Terminate.
Although most standard franchise agreements do not provide franchisee termination rights, some do; and, if you hired an attorney to negotiate your franchise agreement, you may have termination rights that are not available to other franchisees in the system. As a result, if you are seeking to get out of your franchise, your first step should be hiring a franchise attorney to tell you what your agreement says about termination.
However, even if you have termination rights, they are most likely default-based (or “for cause”), so you will need to be able to point to a significant breach of your franchisor’s obligations in order to exercise your right to terminate.
2. Assert a State Franchise Law Violation.
Various states around the country have franchise laws in place that restrict certain franchisor activities and provide franchisees with varying remedies for their franchisors’ franchise law violations. For example, if your franchisor violated a state franchise law by selling you a franchise without timely providing you with an accurate Franchise Disclosure Document (FDD), you may be entitled to seek rescission of your franchise agreement.
3. Find a Buyer.
A third option is to find a buyer for your franchise. Of course, this is not necessarily as easy as it sounds (especially if your outlet is struggling), and your franchise agreement probably includes a transfer fee, franchisor approval right and other conditions on the sale of your business. But, under the right circumstances, finding a buyer can be a good, relatively quick solution for exiting the franchise model.
4. Let Your Franchise Agreement Expire.
Finally, you can run out the clock until your franchise agreement expires. If the end of the current term is in sight and you can survive without going into default under your agreement, while not ideal, this may ultimately be the best option you have available.
Learn More About Your Options From a Franchise Law Firm
If you are interested in exploring your options for terminating your franchise, contact the Goldstein Law Firm for a free, confidential consultation. Jeffrey M. Goldstein is a highly-respected franchise attorney who has over 30 years of experience representing franchisees nationwide. To find out what options you may have available, request a consultation online or call (202) 293-3947 today.