When can a franchise agreement be terminated?

John Pratt writes:

Virtually all franchise agreements are granted for a specific term and either contain an expiry date or a fixed duration for the franchise agreement. The great majority of franchise agreements in the UK are granted for five years.

In addition, some but not many – and generally this is not considered to be desirable – franchise agreements give the franchisor and the franchisee or just one of those entities the right to terminate on the giving of written notice after a specified period of time but before the franchise agreement is due to terminate. This would be unusual.

Finally, you would expect the franchise agreement to contain detailed provisions setting out the situations in which the franchisor can terminate for a franchisee’s breach. It is important for a franchisee that those provisions are as specific as possible and should not, for instance, give the franchisor the right to terminate for a “material breach” because what constitutes a material breach is unclear.

Usually, franchisees have much more limited rights to terminate than a franchisor and, indeed often, franchise agreements do not specify precisely in what situations a franchisee can terminate. Nevertheless, as a matter of common law franchisees can terminate if the franchisor commits such a serious breach of the franchise agreement that the franchisor signals, by that breach, that it no longer wishes to be bound by the terms of the franchise agreement. In practice, it is very unusual for a franchisee to terminate a franchise agreement, because generally that is not in the franchisee’s best interest.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.