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Can you terminate a franchise contract?

On Behalf of | Apr 28, 2023 | Franchise Agreements

Owning a franchise can be one of the quickest ways to dive into the broader business world. If you are a franchisee, you have instant access to an established brand and market. And if you are a franchisor, you earn from giving someone the right to benefit from your brand and intellectual property.

But like most relationships, it is not uncommon for a franchise relationship to run into trouble. And if it does, one party might want to opt out. You just cannot walk out of a franchise contract when you feel like it. There are a couple of steps you’ll need to take to protect your financial interests if you are interested in terminating a franchise contract.

What is a franchise?

Basically, a franchise is a binding business contract between two parties: the franchisor and the franchisee in which the franchisor allows the franchisee to use their trademarks, intellectual property and other business systems and processes for a fee. It may involve producing and distributing goods and services according to already set franchise criteria. In simple English, the franchisor grants the franchisee the legal right to utilize their intellectual property (brand name, business model and other patents) to sell products and services to consumers.

When can you vacate a franchise contract?

As with any other legal contract, it is not uncommon for a franchise contract to feature a termination clause that stipulates when and how either party can walk out of the franchise contract. Here are some of the instances when either party may be in a position to lawfully terminate a franchise contract:

  • A franchisee’s refusal to pay royalties
  • Loss of operating lease or license
  • Bankruptcy or insolvency
  • Failure to comply with the set business operations and standards or franchisor requirements
  • A franchisor’s failure to protect the franchisee’s business opportunities

Protect your interests

Every good thing must come to an end at some point. Learning more about Minnesota’s franchise laws with the assistance of an experienced legal professional can help you safeguard your business interests when ending a franchise partnership.

NOTICE: This blog is intended solely for informational purposes and should not be construed as providing legal advice. Please feel free to contact us with any questions you may have regarding this blog post.