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One way or another, you will be asked to sign a contract that will cancel your franchise agreement from a certain date. The obligation to rebate generally includes the release of the franchisee (whether a business, a trust or an individual) and its guarantors of its obligations under the franchise agreement. Of course, you should get legal advice if you are not aware of any aspect of your outing. A franchise agreement is a contract between the franchisor and the franchisee. You should read it carefully and note the termination clause indicating when, how and by whom the contract can be terminated. It should also contain a language that regulates what each party can or cannot do after resigning. Disclosure of the offences should clearly state what you allegedly did wrong and how this constitutes a breach of the franchise agreement. Franchisors would need a solid foundation and reliable reasons to decide to terminate a franchise agreement for these reasons. Very few of the franchise agreements I audit allow for unilateral termination without penalty, which means that the franchisee cannot simply get up and leave the store as if there had never been. Under the terms of the contract, the franchisee may be responsible for future royalties and current costs such as advertising and software for the duration of the contract.

The franchise owner may also be liable for early termination fees, legal fees and consecutive damages. For example, if a franchisee still has five years on a franchise agreement and its monthly operating costs are $3,000 per month, they could expect to be liable for at least $180,000 in fees against before the franchise is released. It is possible that in addition to these costs, she could be liable for consecutive damages and legal fees, depending on the exact terms of the franchise agreement. Buying in a franchise can be an expensive investment in the long run that can be difficult to start. In addition to the franchisor for the duration of the franchise agreement, the franchisee often has a commercial lease agreement for which he is also responsible. I work with many clients to assess the terms of a franchise agreement, and even if the terms are non-negotiable, we will at least discuss the risks and the best way to reduce the damage if the franchise does not work. To learn more about the franchise agreement, visit our definition page here.

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