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The hidden cost of a franchise dispute

Updated: May 16, 2023

Owning and operating a business can be stressful at the best of times and if problems arise

it can be even more so. When business partners fall out the person who was previously

there to assist and support is now an adversary, making matters even worse. Disputes in a

franchise situation create exactly this perfect storm.

It isn’t often easy to agree to a straightforward closure of a franchised business, enabling

each party to make a fresh start. Post termination clauses are designed to protect the

franchisor from competition in the territory so that a replacement franchisee can be put in

place to continue the business. But this creates huge problems for the exiting franchisee

who wants to make a new start in the same trade without moving to a different part of the


Conversely, the franchisor can also suffer greatly because the failure of the franchised

branch must be disclosed to a prospective replacement franchisee. This will seriously

hamper recruitment. Sales of products or services in the territory will be disrupted and the

revenue stream will cease. The other franchisees of the business are unlikely to remain

impartial and will probably support their former counterpart. This could lead to the problem

being repeated in other territories and the dispute running out of control.

All this will frequently coincide with the commencement of a legal action between the

franchisor and the franchisee. Not surprisingly the stress levels for both parties will

massively increase as positions become polarised. Legal costs are extremely expensive and

difficult to control.

For all the above, and many other reasons, it is important to resolve problems and disputes

in a franchise situation as quietly and speedily as possible. Which is why specialist help and

guidance is so important.

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