Franchising is a popular business model that allows you to operate a business under the brand of another business.
Famous examples of a franchise in Australia include Pool Werx, Muffin Break, and Jim’s Mowing.
A franchisee is a sole trader, partnership or company which enters into an agreement with the franchisor. The franchisor controls the name, brand, intellectual property, and business system of the franchise.
But what if things aren’t working out as planned?
Understanding Termination Options in Your Franchise Agreement
The franchise agreement will usually set out your options for bringing an end to the franchise including:
1.Cooling off
The allows franchisees to end agreements early into their operation. Essentially, a franchisee can leave the agreement within 14 days with no explanation. However, once that cooling off period is done, that’s it’s – you can’t exercise this option again.
2. Selling the business
If you as the franchisee sell the business to a third party, the franchisor – in most cases – cannot unreasonably withhold their consent. If you as a franchisee have outstanding debts or the buyer doesn’t fit into the criteria, you will have trouble taking this option.
3. Early termination
A franchisee can give a written proposal to terminate the agreement early, at any time. The franchisor then has 28 days to provide a written response, and if they don’t agree, they must give reasons as to why they don’t agree to ending the agreement early. This option gives both parties the chance to explain themselves and have a better chance of reaching an understanding.
Legal Obligations and Communication in Franchising
All potential franchisees must have an understanding of their obligations and the options available to them to terminate the agreement before signing.
It is also important for franchisees to know who within the franchisor’s organisation they should approach with any day-to-day issues.
According to the Australian Competition and Consumer Commission, there is an obligation for both the franchisor and the franchisee to act in good faith at all times, including at the end of a franchise agreement.
When to Seek Professional Legal Support
GLG Legal Springfield are the experts when it comes to every aspect of franchising.
If you have questions or issues surrounding your current franchise agreement, contact our office today on (07) 3288 3511 or email: info@springfieldlegals.com.au to make an appointment.