On what basis can a franchisor terminate a franchise agreement?

All franchise agreements should set out the circumstances in which a franchisor can terminate in a very detailed termination clause setting out each situation that would lead to termination.  Certainly if a franchisee became insolvent or ceased to trade or passed confidential information on to a third party termination would be immediate.   You would also expect immediate termination for serious breaches such as the franchisee failing to disclose accurately information on which continuing fees are calculated or doing things that harm the reputation of the brand.  Bear in mind that franchisors have to take action to prevent franchisees from damaging the brand to the detriment not only of the franchisor, but also to the detriment of the franchisor’s franchisees so you would certainly expect a pretty “tough” termination clause. Having said that, as with employment contracts franchisors have to go through the right procedure to terminate and, whatever the franchise agreement says, cannot rush to terminate a franchise agreement.

There may also be termination provisions in relation to less serious breaches so that, for instance, if a franchisee commits two or more minor breaches in a 12 month period the franchisor could terminate.  Often in relation to minor breaches the franchise agreement will allow franchisees a period of time in which to remedy the breach and would only terminate if the breach is not remedied during that period.

You should pay particular attention to the termination clause to ensure that the franchisor does not have too broad a discretion to terminate. Termination is the last resort and the agreement must set out in very clear and specific terms the situations in which termination can arise.