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Will I be penalised if I quit a franchise before the end of the agreement?
Usually a franchise agreement will not give a franchisee the right to terminate 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. 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 two of a five-year agreement, the franchisor could claim for loss of profits during the remaining three-year period of the term. However, the franchisor will be expected to mitigate its loss, and this would mean that it would be expected to take reasonable steps to find a replacement franchisee. This does not mean the franchisor has to do everything possible to find a replacement franchisee, simply that it has to make reasonable efforts to do so. 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.
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