What to do if you have received a breach notice from your franchisor

If you are a franchisee and have received a breach notice from your franchisor, you have options. While stressful, a breach notice does not necessarily mean the end of the franchise relationship. Importantly, where breach notices contain a timeframe for compliance, it is important whatever you do, you do it quickly. This article explores what a breach notice is, and the options available to franchisees who have received them. 

What is a breach notice per the Franchising Code of Conduct?

A franchisor is entitled to issue a breach notice to a franchisee who has breached the franchise agreement. If the breach notice is not remedied, the franchisor may terminate the franchise agreement. Clause 27 of the Franchising Code sets out the requirements for a valid breach notice, as follows: 

  • the franchisor must give the franchisee notice, in writing, that the franchisor proposed to terminate the franchise agreement because of the breach; 
  • the franchisor must tell the franchisee what must happen to remedy the breach (i.e. to fix the issue); and
  • the franchisor must set out when the breach must be remedied, which must be a reasonable timeframe in the circumstances (but need not be more than 30 days). 

If all of these criteria are not satisfied, then the breach notice is unlikely to comply with clause 27 of the franchising code. This does not mean that a franchisor can not raise the issue of a breach, only that they could not rely on that breach to terminate the agreement (at least until a notice that did comply with clause 27 was issued).

What to do if you have received a breach notice from your franchisor

If you have received a breach notice, your options are as follows: 

  1. Remedy the breach;
  2. Issue a dispute notice because of factual errors;
  3. Issue a dispute notice disputing the legal validity of the breach notice; or
  4. Issue a dispute notice because of some other factor, including an offsetting claim or breach of good faith. 

Remedy the breach

If you agree the breach has occurred and none of the other options apply, your best bet is to remedy the breach. If this is not possible you should communicate with your franchisor why that is the case and seek to negotiate a solution to the issue. Both parties to a franchise agreement are subject to an obligation of good faith, which becomes relevant here. 

Issue a dispute notice because of factual errors

Perhaps you dispute some details in the breach notice. Perhaps you dispute the breach occurred at all. Here, you should issue a dispute notice or correspondence inviting the franchisor to withdraw the breach notice, and setting out your issue. If there is any evidence to support your position, such as accounts or statements, it’s a good idea to annex those. 

Issue a Dispute Notice disputing the legal validity of the Breach Notice

If the requirements of the franchising code have not been satisfied, you should communicate that to the franchisor. This should either be in the form of a dispute notice or written correspondence. The most common issue here is with respect to the period afforded to remedy the breach. The Franchising Code requires that period to be ‘reasonable time’, though there are no rules or guidelines as to what a reasonable time is. The Courts have interpreted this phrase as ‘reasonable in the circumstances’. If the period afforded is not reasonable (particularly where you intend to remedy the breach, but need more time), you should set that out in writing. Your response should specify why it is not reasonable, what is reasonable, and what is being done to remedy the breach. You should also expressly state that you do not consider the breach notice has been validly issued in accordance with the Franchising Code. 

Other bases for disputing the legal validity of a breach notice include where the breach and remedial action is not clearly set out, or where the franchisor has not issued the notice in accordance with the relevant clause of the franchise agreement. 

Issue a Dispute Notice because of some other factor

You may have an offsetting claim against the franchisor. For example, lets say the franchisor has issued a breach notice as a result of non-payment of fees. However, you are unable to pay the fees as the franchisor is not providing the number of leads they promised you. Here, you will have an offsetting claim. 

Alternatively, you may believe the Franchisor has issued a breach notice contrary to its obligation of good faith. For example, lets say the Franchisor issued a breach notice for failing to operate the franchised business during a period you were hospitalised, and they knew about the hospitalisation. That raises obvious issues of good faith. 

If such issues apply, you should issue a formal dispute notice. Clause 38 of the Franchising Code sets out the requirements for a dispute notice, being to set out: 

  1. The nature of the dispute; 
  2. What outcome you want; 
  3. What action you think will resolve the dispute. 

Setting out in the notice itself that ‘This is a dispute notice issued in accordance with the Franchising Code’ is a good idea. It will trigger Part 4 of the Franchising Code, which deals with dispute resolution. The franchisor is compelled to try and resolve the dispute after they have received a dispute notice. 


If you have been issued a breach notice, don’t panic. It’s important you develop a plan to respond to avoid termination. Magnolia Legal are well placed to assist if you would like advice as to your next steps after receiving a breach notice . Please reach out for an obligation free initial chat and fixed fee quote.  

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