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What happens if I invest in a franchise and then decide it’s not for me?
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. The sensible thing for a franchisee to do if they wish to leave a franchise is to seek to sell the business.If the franchisee does decide to leave the franchise before the end of the term without selling the business, the franchisor can claim for any loss of income that it may suffer as a result of the franchisee terminating. The franchisor’s loss of profits would include any income it obtained from the management services fee, the sale of products or otherwise.If, for example, the franchisee terminated at the end of year one and it was a five-year franchisee agreement, the franchisor could claim for loss of profits during the remaining four-year period of the term. However, the franchisor will be expected to mitigate its loss, which means it would have to take reasonable steps to find a replacement franchisee to take over the franchisee’s territory.This does not mean the franchisor has to do everything possible to find a replacement franchisee, simply that it has to take its usual reasonable efforts to find one. So realistically a franchisor could claim for the loss of income that it suffers from the date of termination by the franchisee until such time as it takes the franchisor to find a replacement franchisee.This could make a voluntary termination an expensive option for a franchise. Therefore, it is extremely important you choose the franchise you invest in carefully and seek professional advice from a British Franchise Association affiliate lawyer on the nature of the commitment you are entering into.
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