So you want to break up with a franchisee? It is not always as easy as just terminating the franchise agreement for a breach.

The breach has to be serious enough to warrant the “break up”.  Unless the breach falls within the exceptions in the Franchising Code of Conduct, you will need to first allow the franchisee a reasonable time to remedy the breach.

The courts may find you are acting unconscionably if you terminate the franchise agreement for a relatively minor breach.

Let’s say the franchisee owes you $10,000 but the franchised business is worth $300,000 and the franchisee fails to remedy the breach after you have served notice.

Company franchisee

If the franchisee is a company you may choose to serve a statutory demand upon the franchisee.  If the franchisee fails to pay within 21 days then you may have the right to wind-up the franchisee company. If the franchisee company is wound up that constitutes a breach under the Code which allows you to terminate the franchise agreement without notice provided the franchise agreement reflects this.

Individual franchisee

If the franchisee is an individual you may choose to seek a court or tribunal order for the franchisee to pay.  If you obtain the order and the franchisee fails to pay then you may be able to seek to bankrupt the franchisee. If a franchisee becomes bankrupt that constitutes a breach under the Code which allows you to terminate the franchise agreement without notice if the franchise agreement reflects this.

Termination should really be the last course of action you take and you should allow the franchisee every opportunity to remedy the breach.

• Disclaimer – This information is of a general nature only and is not to be relied upon as legal advice.