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On what grounds can a franchisor terminate a franchise agreement?
Generally, there are two situations that give a franchisor the right to terminate a franchise agreement. The first is a breach that is listed in the franchise agreement itself that specifies gives the franchisor the right to terminate. These breaches include non-payment, the disclosure of incorrect information, the insolvency of the franchisee and the franchisee simply abandoning the franchise. In addition, franchise agreements normally provide for the franchisor to have the right to terminate if the franchisee commits a breach of the same provision on more than two occasions in any 12-month period. The second situation arises at ‘common law’. Both the franchisor and the franchisee have the right to terminate the franchise agreement for the other’s ‘repudiatory breach’ of contract. The expression ‘repudiatory breach’ is a breach of contract that is so serious that it brings the contract to an end. At the end of the day, it will be for a court to decide whether such a breach is repudiatory or not but, in a recent franchise case, the judge found that a franchisee’s failure to report monthly fees (when the franchisor’s continuing fees were calculated on the franchisee’s turnover) and the franchisee’s failure to provide customer information to the franchisor both amounted to a repudiatory breach.
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