How a Franchise Agreement Can End, and What Happens Next

A franchise relationship is not always forever. This article delves into the various ways a franchise relationship can end, and considers what happens after the conclusion of the franchise relationship.

Expiration of term 

Most franchise agreements operate within a fixed term, typically spanning 7 years or until a specified date. Often, there’s a renewal term (e.g., another 7 years) contingent upon specific conditions being satisfied. Should the term conclude without renewal, the franchise relationship naturally expires the following day. Likewise, if a renewal term lapses without further agreement, the franchise relationship ends.

Termination by franchisor for breach

Clause 27 of the Franchising Code outlines the steps a franchisor must take if terminating due to a breach. Essentially, this involves issuing a notice of intent to terminate, detailing the breach, hat is required to remedy the breach, and in what timeframe the breach must be remedied. If remedied, the franchisor cannot terminate on the basis of that specific breach. If not remedied per the notice, the franchisor may proceed to terminate the franchise agreement.

The ‘special circumstances’ provisions of the Code provide an alternate route to termination. Here, if on of the special circumstances like insolvency, fraud, or franchise abandonment, occur, franchisors can terminate the franchise agreement on 7 days’ notice. Importantly, franchisors do not need to provide franchisees an opportunity to remedy the issue where one of the special circumstances exist.

Notably, most franchise agreements lack reciprocal termination rights for franchisees in the event the franchisor is in breach.

Mutual Agreement

Most franchise agreements lack provisions allowing the franchisee to terminate at will. However, termination by mutual agreement can occur. Franchisees can propose early termination of their franchise agreement anytime under clause 26B of the Franchising Code. If they do so, the franchisor must respond, either agreeing or providing reasons for disagreement.

Typically, mutual termination is formalized via a deed of surrender. By signing such a deed, the franchisee surrenders their right to be a franchisee for the balance of the term.

Court Intervention 

In severe cases, a court may declare void a franchise agreement, such as instances of misleading conduct during pre-contract negotiations or in the event of a franchisors non-compliance with the Franchising Code. Court intervention of this nature follows a trial and delivery of a judgment.


For sole traders, death or incapacity usually means the end of the franchised business. For registered companies, clauses in franchise agreements enable a reasonable period to appoint an alternative director upon the original director’s demise or incapacity. Shares in an entity operating a franchised business become part of the deceased’s estate. This means the ownership of the shares in a corporate franchisee will be transferred to the deceased shareholder’s beneficiaries.

What Happens When a Franchise Agreement Ends?

Upon franchise agreement termination, both parties don’t simply part ways. The agreement typically includes clauses addressing post-termination obligations. For example, the franchisee is typically required to return all property and intellectual assets, cancel or transfer business names, and remove signage. They must also cancel of transfer any business name registrations, where that business name contains the name of the franchisor.

Restraint of trade clauses often apply, preventing the franchisee from competing or soliciting former customers. However, the legal enforceability of such clauses varies.

Certain clauses contained in the franchise agreement survive termination thereof, such as those regarding confidential information, intellectual property, indemnities, and personal guarantees.

For those considering ending a franchise relationship, crafting an exit plan that considers their contractual and legal obligations is crucial. For advice on these matters, please don’t hesitate to reach out to Magnolia Legal for an obligation free initial chat.

Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply