Termination of a franchise agreement before the expiration of the term can be a major upheaval for both franchisor and franchisee. It lays waste the investment made by franchisee and can affect the brand’s image, when one member is made to leave the franchise network due to some negative circumstances
Termination clauses in the franchise agreements give a long list of grounds under which the franchisor can require the franchisee to shut down their franchise business and de-brand. The justification is to protect the franchisor’s intellectual property (IP), know-how and reputation which also have an impact on the franchise network. Franchisees usually have limited grounds to terminate, such as, insolvency of the franchisor or breach of some warranty provided in relation to their IP rights. This is despite the fact that the franchisee makes the investment to grow the franchisor’s brand in the territory. In addition, the International Development Agreements or the Master Franchise Agreements between foreign franchisors and Indian developers or master franchisees have clauses, whereby the developer or master franchisee is required to waive its right to take legal action against the franchisor.
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