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A franchise agreement may no longer reflect market conditions

On Behalf of | May 25, 2021 | Business Law

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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