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How Can You Get Out of a Franchise?

Written by: Sebastien Page

Article Overview: The law tends to favor the franchisor over the franchisee when it comes to breaking a franchise contract, primarily because franchisors are able to limit their liability via UFOCs and franchise agreements with built-in clauses and disclosures.

How Can You Get Out of a Franchise?

The law tends to favor the franchisor over the franchisee when it comes to breaking a franchise contract, primarily because franchisors are able to limit their liability via UFOCs and franchise agreements with built-in clauses and disclosures. It's no wonder that franchisees have little wiggle room when opting out of an agreement: franchisors are required to list and substantiate earnings claims, current and past litigation, the number of franchises in operation and the number terminated, and all other related material in the UFOC/FDD document.

Occasionally franchisors will provide a buyout clause to franchisees, but most franchisors want to preserve franchise agreements to save money and time. Hence, franchisors generally make every attempt to reconcile problems via arbitration or mediation.

If the franchisor has not held up its end of the deal, however – that is, the franchisor has either made misleading statements to you or has not followed through on advertising agreements or training – you may have a case to work with. Should arbitration or mediation be unsuccessful, you can always pursue a lawsuit. Though some franchisors allow subfranchising or reselling, the franchisor sometimes maintains the right to buy your franchise back from you, which ultimately may garner a less than market value price.

The franchisor has an easier route to ending an agreement than do franchisees should a franchisee default on the franchise contract. There are agreements that contain disclaimers allowing franchisors to end the agreement at their discretion, though these types of clauses are quickly losing popularity. Alternatively, franchisors are rewriting disclaimers so that they limit their ability to terminate contracts.

For the franchisor to cancel the contract, one or several conditions must be met: the franchisee stops doing business, the franchisee declares bankruptcy, the franchisee is defrauding the company, the brand name is being damaged, or there has been a substantial loss of revenue and brand value. Even in the case that the above conditions are met, most franchisors will offer a cure period to the franchisee which provides the franchisee the opportunity to rectify the default.

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Article Tags: arbitration, bankruptcy, brand name, disclosures, discretion, doing business, earnings, franchise agreements, franchise contract, franchisee, franchisees, franchises, franchisor, litigation, mediation, misleading statements, substantial loss, types of clauses, ufoc, wiggle room



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Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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