Under the Franchise Act, what are the conditions under which a franchise agreement can be terminated?

Hello.

Under the Franchise Act, where the head office, that is, the franchisor seeks to terminate the contract with a franchisee, it must provide, with a grace period of 2 months or more, notice of the 'specific facts of the contract breach' to the franchisee.

And the 'fact that the contract will be terminated if the breach is not corrected' must also be notified.

Because not all contract breaches constitute grounds for contract termination, caution is needed.

▶ Examples where a franchise agreement can be terminated without notice

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

- Where a check issued by the franchisee has its payment suspended due to dishonor or the like

- Where, due to a natural disaster or serious personal reasons, the franchisee can no longer operate the franchise business

- Where the franchisee violates statutes related to operation and receives an administrative disposition or a court judgment, thereby clearly damaging their credit

- Where the franchisee suspends business continuously for 7 days or more without a legitimate reason

However, even in such cases, if the franchisor, that is, the head office, did not notify the franchisee at a lawful time, the termination of the franchise agreement has no effect, so caution is needed.

If you wish to know in detail the requirements for terminating a franchise agreement under the Franchise Act, we recommend consulting an attorney with specialized knowledge of the relevant legal principles.