How to End a Franchise Agreement: Key Issues, Legal Risks and Practical Steps

Franchise agreements can offer a structured way to start a business, providing brand recognition, training and ongoing support. However, circumstances can change. Many franchisees eventually find themselves wanting to exit their franchise — whether due to financial pressures, dissatisfaction with support, a change in business direction, or a desire to operate independently.

However, ending a franchise agreement is seldom simple. These contracts are usually drafted to favour the franchisor and contain strict rules about when and how the relationship can end. Exiting incorrectly can expose a franchisee to significant financial and legal risks.

This guide explains the key issues you need to consider, the common pitfalls, and a step-by-step process to help you terminate a franchise agreement safely and effectively.

1. Understanding the Key Issues When Ending a Franchise Agreement

1.1 Notice Requirements

Franchise agreements typically impose detailed notice provisions, including:

• How notice must be given (email, post, recorded delivery, etc.)
• Minimum notice periods
• Specific wording requirements
• Designated recipients or addresses

If you fail to follow these rules precisely, your termination may be considered invalid, leaving you:

• Liable for ongoing fees
• In breach of contract
• At risk of legal action

1.2 Fixed Terms and Restrictions on Early Termination

Many franchise agreements run for a fixed term, often with:

• No automatic right to exit early
• Termination only at specific intervals
• Financial consequences for early termination

Attempting to leave before the end of the term can result in:

• Claims for outstanding fees
• Penalties
• Damages for lost profits

Understanding the length of your commitment is essential before taking any action.

1.3 Exit Fees, Payments and Financial Exposure

When leaving a franchise, franchisees are often required to pay:

• Exit fees
• Outstanding royalties or management fees
• Repayment of initial incentives
• Charges for unreturned or damaged equipment

Some of these costs may be negotiable or even unenforceable if they constitute an unlawful penalty, but legal advice is crucial to assess this properly.

1.4 Franchisor Breaches That May Justify Termination

In some cases, a franchisor may fail to meet its obligations. Examples include:

• Lack of promised support
• Insufficient marketing
• Poor training
• Failure to maintain brand standards

Serious or repeated breaches may give the franchisee a basis for early termination — but only if the issues are properly documented and communicated.

1.5 Restrictive Covenants (Post-Termination Restrictions)

Almost all franchise agreements include clauses limiting a franchisee’s activities after leaving, such as:

• Non-compete clauses
• Restrictions on operating a similar business nearby
• Bans on soliciting customers or using the franchisor’s methods

Some of these restrictions are enforceable; others are overly broad and can be challenged. Understanding them early can help you plan your future business activities.

1.6 Intellectual Property, Branding and Confidential Information

On termination, a franchisee must typically stop using:

• Logos and branding
• Marketing materials
• Operational manuals
• Software systems
• Domain names and social media pages

Failure to do so can lead to allegations of intellectual property infringement or breach of confidentiality.

1.7 Return of Goods, Equipment and Customer Data

Additional obligations often include:

• Returning stock, equipment, vehicles or tools
• Removing signage
• Transferring customer data
• Conducting a final audit or inspection

Disagreements over the condition, valuation or completeness of returned items are common sources of dispute.

1.8 Personal Guarantees

Many franchise agreements require the individuals behind the business to provide personal guarantees, meaning you may still be personally liable for:

• Outstanding debts
• Fees
• Compensation claims

This needs careful consideration when planning your exit.

1.9 Litigation and Disputes

Franchisors sometimes take a firm stance on early termination to protect the brand or deter other franchisees from exiting. This can include:

• Threats of legal action
• Claims for breach of contract
• Attempts to enforce restrictive covenants

Having a solicitor involved early can significantly reduce the risk of escalating conflict.

2. Step-by-Step Guide to Terminating a Franchise Agreement Safely

Below is a practical process designed to help franchisees plan and manage their exit effectively.

Step 1: Review the Franchise Agreement Thoroughly

Identify:

• Term length
• Termination clauses
• Notice requirements
• Fee obligations
• Post-termination restrictions

This is the foundation of your strategy.

Step 2: Assess Financial Exposure

Calculate the potential costs of exiting, including:

• Exit fees
• Outstanding payments
• Contractual penalties
• Equipment return charges

This helps you plan negotiations and minimise liabilities.

Step 3: Identify Any Breaches by the Franchisor

Consider whether the franchisor has:

• Failed to provide promised support
• Made misrepresentations during the sales process
• Breached operational obligations

Keep detailed records, correspondence and evidence.

Step 4: Seek Specialist Legal Advice

A solicitor can:

• Interpret the contract accurately
• Assess whether exit fees are lawful
• Frame your termination notice
• Help negotiate terms
• Reduce the risk of legal action

This is one area where professional guidance pays for itself.

Step 5: Prepare a Proper Written Notice of Termination

Ensure that your notice:

• Complies with contractual requirements
• Uses correct wording
• Is served in the correct manner
• Goes to the correct address or email

Improper notice is one of the most common causes of disputes.

Step 6: Negotiate with the Franchisor

Many franchisors will negotiate if approached professionally. You may be able to:

• Reduce or waive exit fees
• Agree a shorter notice period
• Modify restrictive covenants
• Reach a settlement to avoid litigation

A solicitor can conduct negotiations on your behalf or advise you behind the scenes.

Step 7: Manage the Wind-Down Process

This may include:

• Returning branding or equipment
• Transferring customer data
• Completing final reports or audits
• Closing down systems access
• Handling outstanding issues with staff or suppliers

Smooth handling of this process reduces conflict and protects your reputation.

Step 8: Plan Your Post-Termination Activities

Check how restrictive covenants affect your ability to:

• Start a similar business
• Contact previous clients
• Take on customers in the same area

A solicitor can advise whether the restrictions are enforceable and how to continue trading lawfully.

3. Why Expert Legal Support Matters

Terminating a franchise agreement can have lasting financial, legal and commercial consequences if mishandled. Having experienced franchise solicitors on your side ensures that you:

• Understand your rights
• Avoid unnecessary liabilities
• Protect your future business opportunities
• Reduce the risk of disputes
• Achieve the cleanest exit possible

Need Help Ending Your Franchise Agreement?

At The Jonathan Lea Network, we regularly help franchisees across all industries understand their options and exit franchise agreements safely and confidently.

We can:

• Review your franchise agreement
• Assess your risks and rights
• Draft and serve termination notices
• Negotiate with the franchisor
• Challenge unfair terms
• Advise on operating independently after termination

If you’re considering terminating a franchise agreement, contact us for an initial call. Our team can usually review documents within 24 hours and give you clear, practical advice on your best options.

We usually offer a no-cost, no-obligation 20-minute introductory call as a starting point or, in some cases, if you would just like some initial advice and guidance, we will instead offer a one-hour fixed fee appointment (charged from £250 plus VAT depending on the complexity of the issues and seniority of the fee earner).

Please email wewillhelp@jonathanlea.net providing us with any relevant information ensuring that any call we have is as productive as possible or call us on 01444 708640. After this call, we can then email you a scope of work, fee estimate (or fixed fee quote if possible), and confirmation of any other points or information mentioned on the call.

VAT is charged at 20%.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.

Photo by Scott Graham on Unsplash