Exiting a franchise

When it is acknowledged and accepted that a franchise relationship is not successful, the best option available for putting an end to it is to sell it providing it does not violate the terms and conditions of the franchise agreement. It is essential that a franchisee clearly explain his reasons for not continuing in the relationship and abide by the terms and conditions. The terms and conditions for a sale are usually referred to as a ‘transfer’ in the franchise agreement. The transfer clause outlines all the conditions that need to be fulfilled before the relationship is completely terminated. This process can be quite a long one and during the process, the franchisee is still held responsible for the management of the business.

If the reason for exiting the franchise relationship is the issue of profitability, it could become an issue. This might result in a legal tangle for if the franchise is not making enough money and the franchisor is at fault, this claim will lead to arbitration. It is better to resolve this situation before it getting into third party hands and out of control. Other claims made against the franchisor can include limited training, and lack of ongoing support.

There are two ways how a franchisor can treat the claims against him and go about terminating a relationship. He may either decide to pursue a lawsuit which is a time consuming and expensive process or might buy out the franchisee outright, thereby, protecting the brand from reputation damage. Irrespective of the type of termination and the treatment, the franchisor and the franchisee should strive towards coming to an amicable settlement and behave professionally until the end of the relationship.