Procedural Requirements for Termination of a Franchise
State Your Case: Termination Notices and Franchise Agreement Breaches
Whether you are a franchisor or a franchisee, proceeding with a franchise agreement termination requires specific notice and specificity as to the basis for the alleged breach that your claim. At this stage it is critical to consult with an experienced franchise attorney who will review the franchise agreement and prepare the proper notice. Consider that when terminating a franchise agreements, generally, there are two types of breaches comprised of "curable breaches" and "uncurable breach". A curable breach is one where you must give the other party notice and an opportunity to cure the breach. Only after the opposing party fails to timely cure the breach could you claim that the franchise agreement is terminated. Uncurable breaches that constitute grounds for the immediate termination of the franchise agreement.
What is or is not a curable or incurable breach will be determined by the particular franchise agreement but, generally examples of incurable breaches include:
- A failure to attain minimum sales requirements;
- Misuse of the franchisor’s trademark;
- Damage to the franchisor’s good will;
- Insolvency; and
In a case where a breach cannot be cured within the required amount of time, a court may issue an injunction to prevent the termination of a franchise. A franchisee’s reasonable steps to rectify the breach may be deemed adequate to avoid termination. For franchisors it is important that you be detailed in your termination notice and you afford the franchisee (where appropriate) an opportunity to cure – otherwise a court will enjoin the termination if it is challenged. If you are a franchisee and you are faced with a termination then it is important that you act promptly to evaluate your legal options.