How and when can a franchise agreement be terminated?

The point of a franchise agreement is to give both parties clarity, structure and protection. But when something goes wrong, the consequences can be serious.

To help clarify how and when a franchisor can terminate a franchise agreement – and what actually amounts to a breach – we’ve drawn on expert insights from three leading franchise experts…

What actions count as a breach of the franchise agreement?

Breaches vary from minor administrative failures to serious contractual violations. According to Vicky Wilkes, head of legal at Aston Villa Football Club, common circumstances where a franchisor may terminate a franchise agreement include:

● Failure to pay money due under the franchise agreement

● Failure to provide accounting information required to calculate payments due to the franchisor

● Misuse of the franchisor’s confidential information or trademarks

● Failure to operate the franchised business in accordance with the operations manual

● Failure to start operating the franchise business within a certain time

● Supplying goods/services outside the scope of those detailed in the franchise agreement

● Any action that brings the franchise’s name or reputation into disrepute

She also notes that breaches don’t necessarily end when the agreement ends. As she explains, “a franchisee should also be aware that it is possible to breach a franchise agreement after it has terminated or expired, as some obligations will continue post-termination.” This typically relates to confidentiality and non-competition.

How does a franchisor decide whether a breach can be remedied?

Many franchise agreements differentiate between fixable breaches and those considered so serious that they justify immediate termination.

Shelley Nadler, legal director at Bird & Bird, emphasises that “the circumstances in which a franchisor can terminate a franchise agreement should be set out clearly in a specific section in the franchise agreement.”

For issues such as late payments or missing reports, a franchisor must first give written notice. Nadler states, “If the franchisee fully remedies the breach […] the franchisor will not have the right to terminate the agreement at that time.”

But if you fail to fix the issue in time, “the franchisor will have the right to terminate the agreement,” again via written notice.

Are there legal grounds for termination beyond what the contract says?

Yes – and this is where common law comes in. John Pratt, senior partner at Hamilton Pratt, explains that what the law calls a “repudiatory breach” can be grounds for termination.

“Both the franchisor and the franchisee have the right to terminate the franchise agreement for the other’s ‘repudiatory breach’ – 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.”

He references a recent case where a judge deemed “a franchisee’s failure to report monthly fees […] and provide customer information” repudiatory breaches.

Can franchisees ever terminate the agreement themselves?

Compared with franchisors, franchisees generally have very limited rights. This imbalance is deliberate: once a franchisee has invested, it is usually not in their interest to walk away.

However, franchisees still have protections. A franchisee can always bring a claim for damages if the franchisor fails to meet its obligations. And if the franchisor commits a repudiatory breach, the franchisee can terminate the agreement – although Pratt warns that proving this is “difficult, but not impossible.”

Where a franchisee simply wishes to exit early, Nadler advises a more practical alternative: “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.”

Voluntary termination can otherwise be costly, because “the franchisor can claim for any loss of income that it may suffer as a result of the franchisee terminating.”

What should I check in the termination clauses before I sign?

Termination clauses may seem like small-print technicalities, but they can have significant consequences. Pratt stresses the need for clarity, warning that agreements “should not, for instance, give the franchisor the right to terminate for a ‘material breach’ because what constitutes a material breach is unclear.”

Given the reliance on contractual definitions, prospective franchisees should review:

● the list of remedial vs non-remedial breaches

● post-termination restrictions

● any obligations relating to reporting, payments and approved suppliers

● clarity around what constitutes a serious or immediate-termination breach

Understanding these sections at the outset can prevent costly conflict later.

The bottom line: clarity, compliance and communication

Franchise agreements exist to protect the brand and ensure consistency across a network. But if you breach your obligations, consequences can range from warnings to immediate termination – and even legal action.

As our experts highlight, transparency is key. The franchise opportunity you are interested in should clearly define ‘breaches’. Termination procedures should be unambiguous. You should be fully aware of your contractual obligations, including those that continue after the agreement ends.

Ultimately, whether you’re a prospective franchisee or an established franchisor, understanding these principles is essential for maintaining a stable and compliant franchise relationship.