A franchisee’s right to terminate is regulated by the provisions of the franchise agreement and by common law. In relation to the franchise agreement, generally franchisees are not given an express right to terminate unlike franchisors who can terminate for a broad range of franchisee misdemeanours. That is not as unfair as it sounds because generally franchisees, having invested time and money in a franchise, do not want to terminate a franchise agreement. What they want is for the franchisor to do what it has contracted to do. A franchisee will always have the right to bring a damages claim against the franchisor.
Nevertheless, even in the absence of any contractual right to terminate, the common law gives franchisees the right to terminate if the franchisor commits such a serious breach of the franchise agreement, that it appears that the franchisor no longer wishes to be bound by the terms of the franchise agreement. That is difficult but not impossible to prove.
Even without a right to terminate, it may be possible to negotiate a termination with the franchisor. Whilst, of course, franchisors do not want franchisees entering into the franchise and then changing their mind, franchisors generally do recognise that there may be little point in retaining a franchisee that no longer wants to be involved in the franchise. In such circumstances negotiations will take place as to what payment a franchisor requires from the existing franchisee to compensate the franchisor for the loss that it suffers as a result of the franchisee’s withdrawal.