How to terminate a franchise agreement?

After the duration of a first franchise contract, the franchisee often wants to renew it to continue their activity. However, in some cases, it may happen that one of the two parties wants to terminate the contract before its end.  The question arises: Can we really terminate a franchise contract and if so, how? Theoretically, this type of contract cannot be terminated before the period agreed upon at the signing. Nevertheless, in certain cases, an early termination of the franchise contract is possible.

The renewal of the franchise contract

According to the latest figures from the annual survey of the Banque Populaire franchise, FFF, CSA, 85% of franchisees want to continue their activity within their network at the end of their franchise contract.

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The franchise contract is generally signed for a fixed term ranging from 3 to 10 years. This duration is stated in the franchise contract. After the signing of the contract, two possibilities may arise for the franchisor and the franchisee: either the contract is renewed, or it is not renewed. Generally, it is the principle of tacit renewal of the franchise contract that is most often found. Pay attention to the clauses present in your franchise contract. Indeed, in the absence of a renewal clause, the contract renews automatically if you do not announce yourself before your notice period. 

Some conditions must be taken into account when one of the two parties (franchisor or franchisee) wishes to renew the franchise contract. Indeed, the notices of this tacit renewal must be followed scrupulously under penalty of legal proceedings or renewal by default, as previously explained. All terms of non-renewal must be included in the initial contract. Afterwards, both parties are free to establish a new contract if they wish. 

The different cases of renewal

It is always advisable to refer to the franchise contract, as only it defines the practical terms of implementing the renewal (notice period, renewal request, etc.). 

• Initially, a new fixed-term contract may be signed between the Franchisor and the Franchisee. To conclude, the franchisor must again provide a DIP (pre-contractual information document) to the franchisee. The renewal of the franchise contract also allows for the renegotiation of commercial conditions compared to the initial contract (amount of royalties, non-compete clause, confidentiality clause, etc.). 

An Initial Flat Fee may then be demanded from the Franchisee in exchange for the right to exploit the brand.

• The renewal may also be considered from the perspective of extension. In this case, the franchisor and the franchisee agree to extend the initial franchise contract that is approaching expiration. It is the same franchise contract under the same conditions except for the extended duration.
  
  
  

• Finally, a tacit renewal clause may be included in the franchise contract. This type of clause means that it will be renewed taking into account the same obligations and conditions. The initial contract ends and a new contract is formed. In this case, since a new contract is concluded, a pre-contractual information document (DIP) compliant with the Commercial Code must be sent to the franchisee at least 20 days before the end of the contract.

The termination of a franchise contract

Terminating a franchise contract while it is running or approaching its end is not always a formality and can, on the contrary, become particularly complex. In this section, we will discuss with you all the information you need to know to terminate your franchise contract.

The conditions for terminating a franchise contract

The conditions for both parties: Before discussing the conditions for franchise termination, let’s recall that a franchise contract often operates over a fixed duration. As such, it is not supposed to be terminated before its term. The party initiating this termination thus incurs legal responsibility. Before starting any procedure, it is preferable to refer to the contract end date. 

There are two main cases of terminations: the termination that occurs when, according to you, your franchisor does not comply with the clauses of a signed contract. And the termination that occurs without