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Q.

On what grounds can a franchise agreement be terminated?

Author: Shelley Nadler

answered by Shelley Nadler

Legal director at Bird & Bird

The circumstances in which a franchisor can terminate a franchise agreement should be set out clearly in a specific section in the franchise agreement. The franchise agreement will specify the procedure the franchisor has to follow if it wants to terminate the agreement. These are usually split between those breaches that can be remedied within a specified time period and those considered to be so fundamental that they will lead to immediate termination.Where a breach has occurred that is capable of remedy - for example, a failure to pay money to the franchisor on time or provide a financial report when specified in the franchise agreement - the franchisor will give the franchisee written notice of the breach, which will set out the period of time within which the franchisee has to remedy it. If the franchisee fully remedies the breach, the franchisor will not have the right to terminate the agreement at that time. If the franchisee does not fully remedy the breach within the time specified in the written notice, the franchisor will have the right to terminate the agreement, which will be done by a further written notice to the franchisee.Where a franchisee is in breach of a provision of the franchise agreement that leads to immediate termination, the franchisor will be able to terminate the franchise agreement by sending a written notice to the franchisee. The kind of breach that would lead to immediate termination would be the insolvency of the franchisee, where the franchisee reveals the confidential information of the franchisor or where the franchisee carries on a competing business.

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