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Under what circumstances can a franchise contract be terminated?
Usually a franchise agreement will not give a franchisee the right to terminate the agreement voluntarily before the end of the term of the agreement. If the franchisee does decide to leave the franchise before the end of the term, the franchisor can claim for any loss of income that it may suffer as a result of the franchisee terminating.This could make a voluntary termination an expensive option for a franchisee. Therefore, the sensible thing for a franchisee to do if he or she wishes to leave a franchise network is to seek to sell their business.The franchise agreement will specify the circumstances in which a franchisor can terminate the agreement and the procedure that the franchisor has to follow. These are usually split between those breaches that can be remedied within a specified time period and those that are considered to be so fundamental that they will lead to immediate termination of the agreement.Where a breach has occurred that is capable of remedy - for example, a failure to pay monies to the franchisor on time - 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.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 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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