CAN A FRANCHISER TERMINATE A FRANCHISE AGREEMENT FRANCHISING Franchising is a successful commercial vehicle for the distribution of products and

services. Before entering into the world of franchising, it is important to know what kind of franchising is most suitable according to the circumstances. DIFFERENT TYPES OF FRANCHISING Single Unit Franchising: In single-unit franchise, the franchisee has the right to operate one franchise unit. Usually, the franchisors initiate the relationship with new start-ups with only a single unit franchising. For new franchisees, this is an opportunity to obtain more know-how/understanding of the franchise system before considering applying for additional units. A single-unit franchisee may have a small radius of exclusive territory to operate within; it may be a two or three mile radius. If it is a home-based business, it may be a few specific zip codes. In a singleunit franchise system, the franchisee is extensively involved with almost all operations of the franchise. Due to this high level of involvement, these franchisees are also known as owner-operators. Multi-Unit Franchising: Here, one franchisee is granted multiple units by the same franchiser at one or various locations. The franchisee is less involved with each unit's operations, usually hiring managers and staff for each location to perform the daily operations. This type of franchising is not limited to a particular area with units located at different parts of a town, or even in other countries. Multi-Unit franchising gives franchisors business an overall acceleration, better recognition that ultimately helps reap more profits. It makes the marketing and advertising functions more cost efficient. Area Development: In this kind of franchising, the franchisor grants the franchisee - sometimes referred to as developer - a territory within which the latter agrees to open and operate an agreed number of units according to a development schedule. Area development franchising is mostly offered to companies or individuals that have already set up successful franchises for other franchisers. Usually, in this kind of franchising, the franchisee signs two forms of agreement:

An area development agreement which specifies the territory and the schedule for establishing the franchised units giving the area developer an advantage of low competition or monopoly in that particular area.

Unit franchise agreements which ensures that before each franchised unit is established, a separate unit franchise agreement is signed.

Area development franchising involves only two parties, the franchisor and the franchisee. If the franchisee fails to open the units at the rate required, the franchisor may terminate the development agreement but allow the franchisee to continue operating any unit franchised business that it has already opened. Master Agreement: This allows people/corporations to purchase the rights to sub-franchise within a certain territory giving the master franchisee the opportunity to grow in a fairly short time. To some extent this is akin to an area development franchise. Not all franchisors offer master franchising. Master franchisees can sell franchises on behalf of the franchiser and collect part of the regular royalty for the franchise as well. Absentee Franchisee: In this kind of franchising, the franchisee will not be the day-to-day operator of the franchise, but will be responsible for reporting royalties and income to the franchisor. This allows people to own a franchise without leaving their regular employment. ADVANTAGES OF FRANCHISING Financial Advantages:

i. Franchising creates source of income through franchise fees, royalty and levies thus improving
cash flow. ii. Reduce operating, distribution and advertising costs for the franchisor. Operational Advantages: i. Franchising provides uniformity of procedures.

ii. Effective quality control. iii. Enhanced productivity levels. Strategic Advantages: i. Spreading risks by multiplying the number of locations through other peoples investment.

ii. Faster network expansion. iii. Better opportunity to focus on changing market needs. Administrative Advantages: i. With smaller central organization, business maintains more cost effective labour force.

ii. Reduction of key staff turnover and more effective recruitment.

FRANCHISING UNDER BRITISH LAW

In the United Kingdom, there are no franchise-specific laws. Franchises are governed by comprehensive contracts with no guidelines for franchising. There is some self-regulation through the British Franchise Association (BFA). Usually in Europe the Franchise Agreements are drafted in accordance with the International Chamber of Commerce Model of International Franchising Contract. TERMINATION OF FRANCHISE AGREEMENT Franchises can be terminated by:

i. Mutual consent ii. The franchiser iii. The franchisee

However, this paper will discuss only termination by the franchisor. TERMINATION OF AGREEMENT BY THE FRANCHISOR The exact procedure of termination of the franchise by the franchisor varies from jurisdiction to jurisdiction. In some cases, the State provides legal principles for ending the franchise; at other times, the terms and conditions of the franchise agreement details the procedure. FRANCHISE UNDER STATE LAW The State may impose limitations on both the parties ability to terminate this business relationship. It can provide for a prior notice requirement. In many jurisdictions good cause is required for termination giving the breaching party with an opportunity to cure the breach. TERMINATION OF A FRANCHISE UNDER FRANCHISE AGREEMENT If the franchisor wants to terminate the franchise agreement, he has to act according to the terms and conditions of the franchise agreement. The franchisor has to show reasonably good cause even if he has the exclusive right to terminate the franchise agreement. Reasonable good cause is usually defined in the agreement. In case of breach of contract, it is suggested that the franchisor notify the franchisee of the breach giving him reasonable time to cure the breach to save himself from arbitrations and injunctions. No notice is required if the franchisee gets convicted of any heinous offence, fraud, bankruptcy or if the franchisee is conducting business in a way that endangers public health or safety or repeatedly fails to comply with payments of monies due or repeatedly breaches the franchise agreement or if he abandons the business.

TERMINATION OF FRANCHISE UNDER ICC MODEL INTERNATIONAL FRANCHISING CONTRACT Article 26 of the ICC Model International Franchising Contract, drafted under the auspices of International Chamber of Commerce and largely followed in Europe provides the grounds for immediate termination of franchise. CONSEQUENCES OF TERMINATION A well drafted and comprehensive franchise agreement details the consequences. A comprehensive list of the franchisees obligations upon termination might include some or all options set forth. 1. Upon termination all of franchisee rights pursuant to franchise agreement shall terminate.

2. Franchisee will remove all materials showing its relationship with the franchisor. 3. Franchisee shall cease to use the trademark, or any other sign or name(s) that belong to the
franchisor. 4. All business materials, manuals, instructions etc. will be returned to the franchisor.

5. The franchisee may have to immediately pay all sums pending under the franchise
arrangement. 6. Franchisee shall have to provide a complete list of stock to the franchisor 7. Franchisee shall have to provide a complete detail of tangible assets of the franchise business. 8. The franchisee shall not be entitled to any indemnity for goodwill. After termination of agreement the franchisor should try to immediately secure two things:

1. Goodwill 2. Protection of business know-how, trade secrets

Franchise agreements contain the provisions that the franchisee will not compete with the franchisor, or any other franchisees within a certain area and stated period after termination. The agreement should also contain the provision that the franchisee should not disclose any confidential information imparted to him and/or use it in competition with the franchisor or any of his franchisees. RESTRAINTS Its difficult to the impose restraints on any future business venture of the franchisee. Fixing of reasonable periods of time and/or areas of operation has to be done by reference to what is permitted by law.

SETTLEMENT Settlement is a peaceful way of handling termination, where franchisor and franchisee negotiate every aspect amicably. Net Lawman strictly follows the international guidelines set by the International Chamber of Commerce while drafting documents that helps our clients and ensures legal harmony in the society in general. Franchise Agreement is a complete code that deals with every aspect of the relationship even after its termination of the relationship. This post is written to provide information about can a franchiser terminate a franchise agreement whenever he/she wants. For further details or documents please visit Net Lawman UK.