A common misconception among franchisees is that they will own
or have the rights to their franchise business forever. However, a
franchise agreement will almost always specify a particular term,
for example, five or 10 years, with or without options to renew. At
the end of the term, and once all options have been used, the
franchise arrangement comes to an end.
Unless specified in the franchise agreement, there is no
obligation on the franchisor to:
extend the franchise term;
buy the franchise business or any assets from the franchisee;
pay any compensation to the franchisee for goodwill.
If the franchisor chooses not to extend the franchise term, the
franchisee should be aware of the following obligations:
There may be a restraint of trade, meaning that the franchisee
is not entitled to operate a similar business in competition with
the franchise system. In some instances, this means that the
franchisee may be required to shut down and walk away from the
The franchisee will be required to remove anything that
identifies the business as belonging to the franchise (for example,
signs and marketing material).
The franchisee must return all operations manuals, brochures
and other branded documents to the franchisor.
If the franchise business operates from leased premises, it is
important to consider how the end of term obligations impact upon
the franchisee's obligations under the lease. There is the
potential for this to be worse if the terms of the franchise
agreement and lease do not match up.
It is important for franchisees to be aware of the implications
of the end of the term of a franchise arrangement, prior to
investing money and time in the creation of goodwill in the
This article is based on our experience of general practice
within the franchising industry. The rights and obligations of the
parties at the end of a particular franchise term will be governed
by the franchise agreement.
For further information, please contact any member of the Cooper
Grace Ward Franchising Law team.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).