Franchise attorney, is there a risk if the headquarters unilaterally terminates a franchise agreement?

Yes, terminating the contract of a franchisee may lead to franchise litigation.

The headquarters, that is, the franchisor, must meet several requirements when it seeks to terminate a franchise agreement with a franchisee.

First, only when several grounds that make it difficult to continue the franchise agreement apply can the headquarters terminate the franchise agreement.

Representative grounds on which a franchise agreement may be terminated

▶ where the franchisee files for bankruptcy, or compulsory execution proceedings or rehabilitation proceedings have commenced

▶ where the bills or checks issued by the franchisee have had payment suspended due to dishonor or similar reasons

▶ where the franchisee can no longer operate the franchise business due to a natural disaster, a serious personal reason, or the like

▶where the franchisee has received an order revoking a qualification, license, or permit, or a business suspension order, for violating statutes related to the operation of the franchise store

If it is difficult to determine whether such a ground exists, it is advisable to seek advice from a franchise attorney.

If such a ground arises and the franchisor wishes to terminate the franchise agreement, the franchisor must notify the franchisee with a grace period of two months or more.

In particular, notice must be given in writing two or more times, stating the "specific facts of the contract violation" and stating that the "contract will be terminated if the violation is not corrected." This is mandatory.

If a franchise agreement is terminated without such notice, it has no legal effect, so it may lead to litigation; therefore, it is advisable to have it reviewed by a franchise attorney.