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How does a franchisee breach a franchise agreement?
A franchise agreement will impose certain obligations on a franchisee that if the franchisee fails to comply with, or breaches, will allow the franchisor to terminate it. The failures and breaches that may trigger such a right will be detailed in the franchise agreement, but common circumstances where a franchisor may terminate a franchise agreement include:• Failure by the franchisee to pay any amounts due under the franchise agreement.• Failure by the franchisee to provide accounting information required to calculate payments due to the franchisor.• Misuse of the franchisor’s confidential information or trademarks.• Any action that may bring the franchise’s name or reputation into disrepute.• Failure to operate the franchised business in accordance with any operating manual.Depending on the nature of the breach and the losses suffered by the franchisor as a result, the franchisor may also choose to sue the franchisee for damages.A franchisee should also be aware that it is possible to breach a franchise agreement after it has terminated or expired, as some obligations will continue post-termination. Again these will be detailed in the franchise agreement, but typically include confidentiality obligations and obligations not to operate a competing business within a certain time period after the franchise agreement has terminated.
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