Franchising can be a quick, easy way to establish yourself in business. As a franchisee, you get instant brand recognition. For a franchisor, you receive payment on the use of your business name and, potentially, royalties on your franchisee’s profits. It seems like a win-win—unless the deal is a loser. Sometimes, the franchise agreement simply is not a match, and the owner and operator each want to take their business elsewhere. Other times, catastrophe strikes, and one party wants or needs to terminate the agreement immediately. Under Florida law and most franchise agreements, the parties may be able to end the contract early in certain limited circumstances and with few financial or legal penalties.
In this post, the BrewerLong team will explain the basics of how to get out of a franchise agreement in Florida. We will walk you through some of the legal essentials of how to terminate a Florida franchise agreement and provide some practical tips for both franchisors and franchisees.
What Is a Florida Franchise Agreement?
A franchise agreement is a contract between a franchisor and its franchisee. It will typically contain information about how the franchise must be operated. It will also contain information regarding the relationship between the parties during the franchise relationship. These agreements often contain language governing what each party can and cannot do after the termination of the agreement, including any restrictions on competition, solicitation of employees, and operation of other businesses.
Franchise agreements can be complex, and it helps to speak with an experienced business law attorney before signing one. They can be far-reaching and contain provisions for much more than just broiling burgers or slinging slushies. Most prevent termination except for “good cause,” which is defined by state law. Without a material breach of the contract, a material misrepresentation, or other termination for good cause, most franchise agreements terminate at the contract’s expiration.
When Can a Florida Franchise Agreement Be Terminated?
Typically a party can terminate a Florida franchise agreement under a few conditions. The main condition is a material breach of the contract. For example, reasons a franchisor could terminate
a franchise agreement for a franchisee’s material breach of contract include:
- The franchisee is convicted of a crime;
- They lose a necessary license, business lease, or location;
- The franchisee fails to pay royalties;
- The franchisee fails to correct some contract default after notice from the franchisor;
- They go bankrupt or become insolvent;
- They fail to follow franchisor requirements regarding location and business or product appearance; and
- The franchisee fails to comply with required business operations.
Likewise, a franchisee could terminate the agreement for material breach of contract if a franchisor:
- Fails to provide a material item or type of training that is stipulated in the contract;
- Commits fraud or misrepresents the franchise’s potential profits;
- Does not protect the franchisee’s business opportunity or market territory; and
- Goes bankrupt or becomes insolvent.
These are only some examples of what a material breach could look like by either a franchisee or a franchisor. For instance, if you are a franchisee of an ice cream franchise and the franchisor fails to train your location on how to operate the very specialized machines that you are required to purchase and exclusively use, that might be considered a material breach of contract. However, if you are a franchisee of the same ice cream company and the franchisor takes several months to send a representative to train your staff on making fancy ice cream cakes, that may not qualify as a material breach. As you can see, the determination of whether a breach occurred tends to be a very fact-intensive endeavor.
Speak with an experienced small business lawyer to understand the ramifications of a material breach of a franchise agreement for your small business. The BrewerLong team is here to help.
What Is a Termination Clause?
A termination clause describes whether, when, and how a party can terminate a franchise agreement. Each franchise agreement is different. However, most include a termination clause that allows a party to end the agreement under specific circumstances.
A franchisee who makes $100,000 in profit in Year 1 might be disappointed by the result but might not have sufficient grounds to terminate the agreement. But the franchisee might be able to terminate the agreement if the franchisor stated or even implied that they would make $1 million each year in profit.
How BrewerLong Can Help Getting Out of a Franchise Agreement in Florida
At BrewerLong, we understand the unique challenges entrepreneurs face, especially in the franchise context. We dedicate our time and resources to serving those starting, running, and growing businesses throughout Florida—whether you do it by starting a company from scratch or buying a franchise. If you are interested in buying, setting up, or terminating a franchise in Florida, call our team today or contact us online.
Since its inception in 2008, our firm has put people and relationships first, successfully serving business owners and their families.