The existing franchise agreement will either be awarded to the buyer or more often the buyer will enter into a new franchise agreement with the franchisor. When franchisees initiate the application, franchisors generally require an exit payment. It is reasonable for franchisors to be compensated for the loss of franchise rights that they would otherwise receive if the franchise agreement had reached its full lifespan. Franchisors may instead agree to buy back the transaction from the franchisee, but generally for below the market value. Finally, you should always seek legal advice on your options before taking steps to terminate a franchise agreement in order to be fully aware of the unintended consequences. However, you should be aware that in the event of a transfer, an exit payment is often required to compensate the franchisor for future lost franchise fees/licences. On the other hand, if you have contributed financially to the equipment of the commercial premises, you can possibly deduct this amount from any exit payment that the franchisor wishes to impose. The advantage: they get rid of an unfortunate and stressful environment and can allow a franchisee to use a better income opportunity elsewhere. Some agreements are quite complex, and you would be well advised to consult a business lawyer before signing them. It may also apply to state law. Most of them prevent dismissal, with the exception of the “good cause” defined by each state. Franchises are business structures in which an investor acquires the right to use an operating model.
The benefits are the ability to join an established company with a small investment and get operational and marketing support from the franchisee. However, if a situation arises in which the franchisee wishes to terminate his contract, the process may, depending on AllBusiness.com, be laborious, as the agreement generally favours the franchisee. I would strongly advise franchisees not to terminate their contract or simply to cease trading without first taking legal advice to understand their options and what the consequences of any option might be. As mentioned above, you may face a significant financial claim or a claim from your franchisor if you improperly terminate your agreement. Franchise agreements also include restrictions on what a franchisee can or cannot do after the termination of the contract.