Franchise agreements generally operate for a set period. However, a franchise agreement may come to an end early for a number of reasons.
Whether you or your franchisor have the right to terminate your agreement, and in which circumstances, will normally be determined by the terms of the contract. However, if a franchisor proposes to terminate an agreement before it expires, they must follow the processes set out in the Code (e.g. provide reasonable notice), except where special circumstances apply.
Your ability to transfer your franchise to another person may be subject to certain conditions set out in your franchise agreement (e.g. firstly obtaining the franchisor’s consent). If you seek the franchisor’s consent to a transfer, that consent cannot be unreasonably withheld. A franchisor will be taken to have consented to the transfer if it doesn’t object within a certain period.
A franchisor may revoke its consent to a transfer within 14 days of granting it by advising you in writing of the decision and setting out the reasons.
The Code doesn’t give you an automatic right to renew or extend your franchise agreement, or to enter into a new agreement after the initial term has ended. Whether you have the right to renew or extend your franchise agreement, or enter into a new agreement, will depend on the terms of your individual agreement.
The Code requires franchisors to outline in their disclosure document what rights prospective franchisees will have at the end of their agreement. In addition to this, a franchisor must notify you, at least six months before the end of your term, whether they intend to extend your agreement, or grant another franchise agreement. If the term is less than six months, the franchisor must notify you one month before the end of term.
Note: If a franchisor intends to extend the franchise agreement, it must notify you (at the same time) that you’re entitled to a current disclosure document (if you haven’t requested one already in the last 12 months).
Franchisor insolvency can affect franchisees in different ways. For example:
- if the franchisor holds the head lease on your premises, you may lose your right to occupy the premises
- if the franchisor (or associated company) supplies your stock, you may be unable to obtain stock
- you may lose your right to use the brand
- you may have to continue to making payments to suppliers, landlords, employees and banks even if you can no longer operate your franchise.
Before buying a franchise, you should look at the franchise agreement to see if it says anything about franchisor insolvency. Also talk to a lawyer and accountant to clarify what your rights and responsibilities would be if the franchisor did go under.
If you have a dispute about a proposed termination of a franchise agreement, you can use the Code's dispute resolution procedure.