Franchise agreement expiration options

Sarah Stowe

Q. Our franchise agreement expires in June 2014, but the lease between the shopping centre and the franchisor doesn’t expire until October 2014. We don’t want to stay in the business anymore.

A. There are a number of matters to consider:

  1. Although the lease is between the franchisor and the landlord is there a sub-lease between you (the franchisee) and the franchisor or a licence to occupy or term of the franchise agreement that makes you in effect liable for rent until October. This will be a matter you need to take into account.
  2. Why do you want to cease operating the business? If it is unprofitable that is understandable but it impacts on its value as a saleable asset. If it is profitable it may be an asset you can sell but if the franchise has not been renewed for an another term you may not in reality have a business to sell. This leads to a series of questions such as whether their is an option to renew the franchise, whether it has been exercised and whether the franchisor has complied with the Franchising Code of Conduct in relation to the termination of the franchise term.

With the benefit of a review of the franchise agreement and your answer to these questions your rights can be ascertained and advice given on what you should do to protect your position.