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Ending the Franchise Relationship

Written by: Peter Macrae Dillon

Article Overview: Sooner or later, every franchisor is faced with the difficult task of ending, or terminating, a franchise. How should the franchisor proceed? What rights does the franchisor have? What rights does the franchisee have? This article is a primer on what the franchisor needs to know to avoid problems. peter macrae dillon Siskinds franchise franchisor franchising lawyer attorney Toronto Ontario Canada www.franchiselaw.ca

Ending the Franchise Relationship

Virtually every franchise system has problem franchisees. Sometimes the problem is the individual running the franchise. Sometimes the problem is a bad location. Whatever the cause, franchisors are presented with franchisees from time to time that they would like to terminate.

It’s not easy for a franchisor to put an end to a franchise. Regardless of what the franchise agreement says, all franchisees have the right to apply for a court order preventing or delaying the franchisor from terminating the franchise or enforcing whatever security agreement the franchisor may have. In such an application to a court, the franchisee will benefit from being the “little guy” in the dispute.

In order to terminate a problem franchisee, the successful franchisor must plan carefully and execute swiftly. Here’s a franchisor’s hit list:

Know your rights

The franchise agreement must be carefully reviewed to ensure that all of the franchisee’s obligations that the franchisor considers to be important are clearly set out. The franchise agreement must also provide specific consequences for failure of the franchisee to observe these obligations; i.e., that franchisor must clearly have the right to terminate the agreement for the default in question.

Build the case

It’s important for the franchisor to “build its case” against the problem franchisee. The franchisor should not seek to terminate the agreement on the basis of “minor” breaches. Rather, notices of default should be sent out in connection with each of the breaches in question and a detailed file maintained with respect to all such matters together with particulars of the follow-up by the franchisor in each case. The franchisee should not be able to argue that the franchisor has condoned its conduct.

Follow the letter of the agreement

Third, when a major default occurs or when a number of minor defaults have accumulated, the notice of default or termination must be absolutely correct in its content. A proper accounting of any dollar amounts should be set out. All time frames for notice and the method of notice provided for under the franchise agreement should be scrupulously adhered to and, where appropriate, a “belt and suspenders” approach should be taken by providing an extra few days’ notice and by sending copies by a couple of alternate means of delivery.

Reset the clock

The franchisor should not allow the franchisee to “muddy the waters”. If deadlines or specific amounts are set out and the franchisee does not comply because an extension or modification has been agreed to, the franchisor needs to “reset the clock” clearly and with specifics of whatever additional requirements remain outstanding. Notes should be made of all conversations, and all communications carefully kept in the file.

Act promptly and firmly

Finally, when the decision is made to terminate the franchisee, the decision should be implemented swiftly and with conviction (care must be taken to ensure that all notice periods required by law are clearly observed). You may even be pleasantly surprised to find that your once problematic franchisee is now anxious to cure all outstanding defaults, once he sees that you are prepared to take termination proceedings.

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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]
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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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