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Can You Get Out of a Franchise Agreement?

By Jenny Tsay, Esq. on April 10, 2014 10:32 AM

Can you legally get out of a franchise agreement?

Buying a franchise may seem like a great business opportunity, but there are a few situations that may warrant the termination of a franchise contract.

Although it's best to talk to a business and commercial law attorney about any issues that arise, here are a few ways you may be able to get out of your franchise agreement:

  1. The franchisor didn't fully disclose the facts. Any business owner wanting to buy a franchise should do her due diligence about the franchisor before signing a contract or forking over fees. However, if the franchisor didn't disclose material facts about the business, the franchisee may be able to terminate the franchise agreement. Material facts are anything that could seriously affect the business, including pending litigation, the franchisor's financial health, and any criminal sanctions.
  2. Misrepresentation. If the franchisor intentionally misrepresents a part of the company or the agreement and it causes you to lose business or money, you may have grounds to terminate the franchise agreement. For example, if the franchisor tells you that you're the only one in town who'll be allowed to operate under their brand, but within a month, three other stores pop up, that may be considered misrepresentation.
  3. Breach of contract. Franchisors who don't abide by the promises they made in the franchise agreement risk a breach of contract action. A breach could be something as simple as promising to advertise your franchise location on a corporate website during the first month of operation, but failing to take any efforts to do so.
  4. Franchisor fails to provide support. Some franchisors disappear after you've paid the franchising fees. However, a franchisor may be in violation of your agreement if the company promises to provide training or a level of support but doesn't deliver.
  5. You decide to return the business. This is the most undesirable option because it could come at a very high price, but if you've given it your best and the franchising agreement just isn't working out, consider returning the business. The down side: You'll still have to pay the franchisor all monies owed, according to Intuit.

Before you take the drastic step of terminating a franchise agreement, you may want to try to address your issues with the franchisor first -- or hire a lawyer to do so on your behalf.

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