Understand your rights and obligations: Familiarise yourself with your franchise agreement terms and the provisions of section 54 of the Franchising Code of Conduct to make informed decisions.  

Consider your options: What are the implications of terminating the franchise agreement? Will it impact the value of your business and how it might be able to operate, if at all? Will it trigger an obligation to repay a bank loan? What are the impacts on any premises lease? Will it trigger liability under personal guarantees? Is sale of the franchised business as a going concern a realistic option?  

Consider the franchisor’s perspective: There may be factors that complicate the franchisor’s ability to accept a franchisee’s request for early termination. For example, if the franchisor has leased a premises, there may be penalty and surrender fees for early termination. Early termination usually means the franchisor will lose future revenue from royalties and other fees. The franchisor may also need to consider if early termination will damage its brand. 

Prepare a detailed proposal: When proposing early termination, provide a comprehensive proposal including the reasons for termination, financial implications, and suggested exit terms. It is important to build into the proposal elements that show you have considered the effect on the franchisor. You could include an offer to take over the premises lease, agree to make a lump sum payment in place of future royalties, explain how you plan to honour non-compete clauses or agree to not compete, or propose a termination date that gives the franchisor time to find another operator for the business.  

If financial hardship is the reason, provide details of your financial position and the likely consequence if the proposal is not accepted and you need to appoint a liquidator or administrator. If health is the reason, perhaps suggest some potential part-time involvement you could have in the business or special transitional assistance you might provide. 

Seek legal advice: You may wish to consult with a franchise lawyer to make sure your proposal is legally sound and to understand the potential consequences of early termination. 

Communicate clearly: Maintain open and honest communication with your franchisor. Clearly articulate your reasons for wanting to exit and be prepared to negotiate in good faith. Even if you decide not to make a proposal for early termination, there is usually value in having a discussion with the franchisor about any additional support or assistance they may be able to provide. Engage in any dispute resolution process with an open mind to possible options.