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How to achieve the best resolution to a franchise dispute.

Updated: May 16, 2023

Franchising should be, and mostly is, a mutually beneficial partnership between a franchisor

and a franchisee but sometimes things go wrong. If that happens the first step for the

aggrieved party would normally be to try to resolve the problem by informal discussion. If

that does not produce results the next step would be to formalise the complaint, usually by

appointing a solicitor. However, before doing that it would be useful to consider how the

opposing party is likely to respond.

The parties will react differently to the dispute. A franchisor is in the business long term and

will be concerned about negative publicity and what effect the dispute will have on other

franchisees of the business. The franchisee probably has less money to pay for an

arbitration or a court case and may be less aware of the finer intricacies of the franchise

agreement. The party intending to formalise the dispute should be aware of the respective

areas of strength and vulnerability and plan their next move accordingly. The best plans will

provide some benefits for the opposing party because that will greatly improve the possibility

of reaching an agreement and avoiding litigation.

For a franchisee, a key consideration will be if they wish to remain in the business. For a

franchisor, the obverse is if they want to retain the franchisee and continue to work with

them. If both are affirmative, it is obviously important that the dispute resolution is conducted

in an amicable and non-confrontational manner.

If either party does not want to continue the relationship, the way in which the franchisee

leaves the business is important. Both parties should act ethically and without acrimony. In

particular, the franchisor should appreciate that social media is very powerful and the days

are long gone when it was sensible to ‘send a message to the network’.

The re-sale exit.

An ideal way of achieving an amicable parting is a re-sale because that provides a

continuation of the business and the resulting income stream for the franchisor. It also

removes the possibility of future problems with enforcing post-termination clauses. A re-sale

provides the franchisee with the sale price and the franchisor with a percentage, if that is

included in the franchise agreement as it usually is. A re-sale by an incumbent is much

easier to achieve than the sale of a territory that has been previously occupied by a failed or

terminated franchisee. The re-sale exit has benefits for both sides

The non-renewal exit.

Franchise agreements are for a fixed period and almost always grant the franchisee the right

to renew, subject to certain conditions. Central to the conditions will be the franchisee’s

previous compliance with the franchise agreement and the operations manual. A franchisor

who is unhappy with the performance of a franchisee can use non-renewal as an alternative

to termination. It is less contentious and unlikely to provoke retaliation, such as a

counterclaim. Obviously, it is incumbent on the franchisor to make the franchisee aware of

an intention to refuse a renewal. This allows the franchisee the opportunity to rectify matters.

For a franchisor, non-renewal is generally a less contentious method of removing a

franchisee who is not performing properly. As such, the non-renewal exit usually favours the


Rescission of the franchise agreement.

The difference between rescinding and terminating an agreement is that rescinding puts the

parties back into the positions in which they were previously. The most obvious example of

this relates to post-termination clauses. For a franchisee, rescinding the agreement would

nullify any post-termination clauses and allow them to carry on the same business in the

same territory. Rescission is available in cases where there has been misrepresentation by

the franchisor in the materials and financial projections that were used to induce the

franchisee to sign the franchise agreement. Rescission usually favours the franchisee.


Negotiation is by far the best method of resolving a franchise dispute. It costs nothing and is

less likely to cause resentment and long-lasting reputational risk for the franchisor. It does

require a degree of pragmatism by either side which is often in short supply in a franchise


A franchisee will probably see the franchisor as being more powerful and may take the

matter more personally. A franchisor will be concerned about the effect that a negotiated

settlement will have on other parts of the business. Also, to avoid showing weakness or

inconsistency that will impair their control over the business. These opposing forces are

difficult to overcome and may require some input from professional advisors.

Obviously, not all disputes can be resolved by negotiation, but it remains by far the best way

of doing so.


Most franchise agreements contain a clause that states that in the event of a dispute the

parties will firstly try to mediate. This follows the direction of travel of the legal system in

which an initial attempt to mediate is a pre-requisite to litigation. Mediation provides both

parties with some control over the outcome as opposed to having a verdict imposed upon

them by a court. The mediator’s role is to assist negotiation, not to pass judgement. A

mediation will only usually last a few hours and very seldom longer than one day. As such

fine details of the dispute and any long-term implications of a settlement are unlikely to be

explored. Mediation is much quicker and vastly less expensive than litigation.


Litigation is sometimes the only way to settle a dispute but it should only be used as a last


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