Buying a franchise: agree a period to remedy breaches

Shared quality standards within a franchise network protect both customers and franchisees. Even so, prospective buyers should establish what happens if their business fails to meet a contractual obligation. A missing report, a late payment and a serious safety failing are not equivalent situations. Before buying a franchise, negotiate a clear procedure that identifies the breach, allows an appropriate period to put it right and sets out understandable conditions for ending the relationship.

1. Identify the grounds for ending the relationship

Find every clause in the draft agreement dealing with breaches, notices, obligations to remedy breaches, termination on notice or immediate termination. Read any referenced schedules and operating guidelines too: grounds for termination may relate to an obligation whose substance is set out somewhere other than the main agreement.

Termination on notice generally means ending the agreement after a notice period. Immediate termination, by contrast, usually brings the agreement to an end straight away. Always check how these terms are used in the agreement you are being offered. Do not assume that a fixed-term agreement can be freely terminated on notice before its term expires.

List the grounds for termination, distinguishing between, for example:

• late payments or reports
• failure to follow operating guidelines and quality standards
• unauthorised use of the franchise concept or branding
• serious safety or legal compliance failings
• repeated breaches for which notices have already been issued.

Ask the franchisor which of these can be remedied and when it considers immediate termination necessary. A reference simply to a “breach of any obligation” is a reason for a buyer to seek clarification. It may leave you uncertain about what even a minor mistake could mean for the continuity of your business.

Also ask for a practical example of how the clause would apply to an ordinary reporting error. This will help you see whether the franchisor’s stated approach matches the wording of the agreement, or whether its promise of flexibility rests solely on discretionary practice.

2. Specify what a notice must contain and when the remedy period starts

A period to remedy a breach is of little use if the franchisee does not know what they need to do. Propose a written notice procedure requiring the franchisor to identify the obligation breached, the events observed, the corrective action required and the deadline. The notice should also explain what will happen if the failing is not remedied.

Agree where notices must be sent and when the remedy period is deemed to begin. Unclear arrangements for serving notices can reduce the time actually available. Also make sure someone in your business is responsible for monitoring contractual notices during holidays or other absences.

Do not settle for a single deadline covering every situation. Resolving a payment error, changing a working practice and repairing a technical fault may require different steps. The aim of negotiation is a realistic deadline, not the longest possible delay. An urgent safety risk may require immediate restrictions on operations, even if a permanent remedy takes longer.

If the remedy depends on an external maintenance provider or the franchisor’s approval, agree interim arrangements as well. Could a corrective action plan submitted and approved by the deadline prevent termination, provided the franchisee implements it as agreed? This option should be written into the agreement rather than left as a verbal promise.

Specify how completion of the corrective action must be demonstrated. Will you need proof of payment, a new report, a photograph or an inspection? Ask for a procedure under which the franchisor confirms that the matter is closed. Otherwise, a failing that has already been remedied may remain unresolved between the parties.

3. Assess exceptions and your own legal remedies

An automatic right to remedy every breach is not necessarily appropriate. The consequences of a serious or irreversible breach may be impossible to undo. What matters is that the grounds for immediate termination are defined clearly enough and that you assess their implications before committing.

Pay particular attention to any clause on repeated breaches. Does repetition mean the same failing recurring, or any separate mistakes? Over what period are notices counted? Could a minor failing that has already been remedied later be combined with an entirely different incident to justify termination? Ask for written answers.

Finland has no specific franchising legislation, no statutory standard-form franchise disclosure document and no dedicated registration system for franchise agreements. The contractual relationship is governed by, among other things, the Finnish Contracts Act and general principles of contract law. The Finnish Unfair Business Practices Act applies to marketing and commercial conduct, while operations may also be subject to requirements under the Competition Act and the Trademarks Act. There is no universal statutory remedy period of a fixed length for all franchisees.

Section 36 of the Finnish Contracts Act allows an unreasonable contractual term to be adjusted or disregarded where the conditions for applying that provision are met. However, it does not guarantee that a strict termination clause in a business-to-business agreement will later be set aside. The code of ethics binding on members of the Finnish Franchising Association is self-regulation, not legislation or a substitute for a precisely drafted agreement.

Also ask a lawyer to check whether the procedure works both ways: how can you notify the franchisor of its breach, and what rights do you have if it fails to put matters right? Reciprocity does not necessarily mean identical deadlines, but it does mean having a workable procedure for both parties’ obligations.

4. Test the procedure before signing

Work through a hypothetical scenario with the franchisor in which a monthly report has not been submitted. Who identifies the omission, who receives the notice and what must the franchisee provide? When is the matter considered resolved? Do the same for a more serious failure to meet quality standards and for a breach by the franchisor itself.

Compare the answers with the agreement. If the franchisor describes a conciliatory approach in practice but the wording allows immediate termination for a minor failing, ask for the wording to be changed. A cooperative relationship is a valuable starting point, but the agreement must also work when personnel change or disagreements arise.

Include the final procedure in the set of contractual documents to be signed. In your own cost estimates, allow for potential corrective action, investigation work and temporary restrictions on operations. This will also help you assess whether your business can meet the agreed requirements in practice.

Practical reminder: sign only once you know what can trigger a notice, how you can remedy a failing and when the franchisor can terminate the agreement without giving you an opportunity to put matters right.