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A franchise agreement may no longer reflect market conditions

Franchise agreements contain terms business owners promise to follow. The terms may include making changes, such as adding new products or technology. Failing to comply may result in a breach of contract, and a franchisor may attempt to end the relationship.

In some cases, a corporation may implement a new marketing or branding strategy. As reported by Restaurant Business magazine, franchisees agree to remain consistent with the brand and make any requested changes. When a franchisor’s demands become financially overwhelming, however, either party may attempt to rescind a contract.

Franchisors have a right to terminate an agreement

The California Franchise Relations Act prohibits a franchisor from terminating an agreement unless it can prove “good cause.” If, for example, a franchisee fails to make improvements or changes to maintain a brand’s uniformity, a franchisor may attempt to rescind a contract. The company must provide 60 days’ notice to make the changes before it can claim a franchisee breached an agreement.

Under the Act’s Article 3, section 20021, franchisees may face an immediate notice of termination when they repeatedly fail to meet a franchisor’s demands for changes. Abandoning a business for five consecutive days without reasonable cause may also result in an immediate rescission. Neglecting to pay past due fees and costs may serve as another reason for a franchisor to rescind an agreement.

Franchisees may recover costs under a lawful termination

If a franchisor lawfully terminates a franchise agreement, it must purchase the items a franchisee paid for to meet the company’s requests. Business owners have a right to relief for furnishings, fixtures, supplies and inventory a franchisor required them to purchase to maintain the company’s branding.

Franchise agreements may include clauses that favor the corporation offering a business opportunity. Franchisees, however, also have rights when demanded changes reduce their ability to operate profitably.

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