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tdlawyer
tdlawyer, Lawyer
Category: Law
Satisfied Customers: 1096
Experience:  11 years experience of general practice.
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I am 3 years into a 5 year franchise agreement (franchisee),

Resolved Question:

I am 3 years into a 5 year franchise agreement (franchisee), and I need to terminate the agreement. I have been operating at a loss for the three years, the income I receive is 90% lower than estimated and there will be no money in the account after I pay the franchisor the few hundred I owe her.

I want out as quickly and cleanly as possible. What would be the implications of declaring bankruptcy in this case? Would that mean she could not sue for breach of contract? My company is Ltd.

Many thanks.
Submitted: 3 years ago.
Category: Law
Expert:  tdlawyer replied 3 years ago.

tdlawyer :

Hello, welcome to the website. My name isXXXXX can assist you with this.

tdlawyer :

Is the franchisor in breach of the agreement in any way?

Customer:

Well, I was sold the franchise with "illustration figures" that showed turnover in year 3 of around £85,000. Instead in year 3 I turned over less than 20K. This is true of all franchisees who opened outside London. It probably isn't breach because it was never promised...

tdlawyer :

Well, maybe, but things are never that easy. It might be that they owed you a duty of care to present realistic figures, but you might say they never did - that is something different from contract. It does, however, depend whether the contract seeks to exclude this type of claim.

Customer:

It's actually very obscure about terminating the agreement. It only talks about the point of renewal, not terminating early. I had heard that contracts legally had to have clear guidelines about how to terminate?

tdlawyer :

No, that's not true. If there is nothing about termination, the general rule is that absent a breach of contract, you can't terminate. So in other words, this should terminate only after the agreed term.

Customer:

If I was to simply declare bankruptcy would that stop her being able to come after me?

tdlawyer :

So the point I'm making is that if there are no provisions on termination, it should go the term agreed. However, if you see a lawyer you might be able to argue that there are existing breaches that means you should be able to make a claim and hopefully, come to some agreement that means you walk away without liability.

tdlawyer :

Have you given personal guarantees?

Customer:

What does that mean?

tdlawyer :

The FA is with the company? So have you as an individual also agreed to do something under the franchise agreement?

Customer:

Sorry, what is FA? The agreement as I understand it is with the limited company.

Customer:

I'm sorry - I need to take a 5 min break?

tdlawyer :

The FA is the franchise agreement.

tdlawyer :

Sure.

Customer:

apologies - I'm back.

tdlawyer :

That's okay.

Customer:

No the contract states that it is between the franchisor's limited company and my limited company.

tdlawyer :

Are you a party to the agreement?

Customer:

I'm sorry, I don't know what that means.

tdlawyer :

Your company is party to the agreement - are you?

Customer:

How would I know that? Is it in the contract?

tdlawyer :

Yes, have a look at the agreement.

Customer:

What exactly am I looking for?

tdlawyer :

Your name (and possibly address).

Customer:

No I can't see it. The company address is the same as mine anyway.

tdlawyer :

Then it's likely to be a claim agains the company only - not you personally.

tdlawyer :

In other words, you would not need to be bankrupt. You could potentially just close the company down.

Customer:

Oh, just dissolve the company and that's the end of it?

tdlawyer :

I'd suggest you take it to a solicitor first, before doing anything, but it looks like this might be an option for you.

tdlawyer :

Yes, possibly.

tdlawyer :

If you're not in the agreement, then this is likely to be a possibility.

Customer:

Ok, that's a relief. I don't have time to see a solicitor before I speak to her on Wednesday. Should I avoid telling her my intentions before I speak to a solicitor?

tdlawyer :

Yes, you should - take professional advice on the actual documents - it's very important to you.

Customer:

Quickly - what's the worst case scenario?

tdlawyer :

Worst case - you're party to the agreement and you might go bankrupt. If you're nor party to the agreement then maybe the worst case is you close the company and walk away.

tdlawyer :

Can I ask whether you're happy with the service from me this evening please?

Customer:

Yes, thank you. It's been very helpful.

tdlawyer :

Great - thank you! Have a break week.

tdlawyer :

great :)

Customer:

if I can break out of this contract it will be great!

tdlawyer :

Hopefully you can! Good luck!

tdlawyer and 2 other Law Specialists are ready to help you