Terminating a franchise agreement: plan your exit before you buy

Before joining a franchise network, establish not only how you will get started, but also how you can bring the relationship to an end. Poor performance, illness or a loss of trust in your partner may make you want to leave early. Simply deciding to close your outlet does not, however, terminate the agreement. Check the exit terms before paying any money or taking on commitments.

1. Check whether you can end the agreement early

In Poland, a franchise agreement is an ‘unnamed contract’: there is no separate statute comprehensively regulating franchising. The Polish Civil Code is central, including the principle of freedom of contract and the rules on performing contractual obligations and the consequences of breaching them. Depending on the circumstances, competition, intellectual property, tax and employment rules may also apply.

There is no franchise-specific statutory disclosure system based on a franchise disclosure document (FDD), nor a general requirement to provide such a document exactly 14 days before signing. Voluntary codes of conduct are no substitute for legislation or a review of the particular agreement.

First, establish whether the agreement is for a fixed term or an indefinite period. With a fixed-term agreement, do not assume you can simply leave by giving a few months’ notice. Look for express grounds for early termination and ask a lawyer to check what additional rights the law provides. For continuing obligations of indefinite duration, Article 365¹ of the Polish Civil Code is relevant: it provides for termination by notice.

Ask a specific question: ‘How can I end the relationship if you are not in breach of the agreement, but running the outlet is no longer financially worthwhile for me?’ The answer should be found in the documents, not just in assurances from the recruitment representative.

2. Distinguish termination on notice from immediate termination

Termination on notice gives you time to wind down the business. Termination with immediate effect may remove the outlet’s right to use the brand without that transition period. Withdrawal from the agreement is a separate legal mechanism whose grounds and consequences need to be assessed independently. Do not treat these terms as interchangeable.

Ask for a breakdown of the grounds on which each party can end the relationship. In particular, check:

• whether the franchisee can terminate without giving a reason;
• which breaches allow immediate termination;
• whether both parties have similar rights;
• how the notice period is calculated;
• whether a minimum term restricts your ability to leave.

Be wary of wording such as ‘loss of trust’ or ‘harm to the network’s interests’ unless it is supported by objective criteria. Propose wording that describes specific events. A clause allowing termination for failure to pay an amount when due is easier to assess than a general reference to unsatisfactory cooperation.

3. Agree a procedure for remedying breaches and validly serving notices

Not every failing should end the relationship immediately. Negotiate a procedure under which the party alleging a breach first describes the problem, identifies the relevant contractual provision and sets a deadline for putting it right. Exceptions for particularly serious breaches should be clearly defined.

The time allowed to remedy a breach must suit the nature of the problem. Clearing arrears and improving an operating procedure require different actions. Agree how compliance will be confirmed and who will assess whether the required steps have been taken. Keep correspondence and evidence of the action you take.

The form of the notice is equally important. Check the requirements for signatures, recipients and methods of delivery. An ordinary email will not always satisfy a requirement for written form under Polish law. Nor should you assume that the date of sending is the date on which notice legally takes effect. The agreement should specify addresses for service and an obligation to notify the other party of any changes. This helps prevent a dispute over the validity of termination from overshadowing the final settlement.

4. Calculate the liabilities that will remain after you leave

Ending the franchise agreement does not necessarily end your contracts with employees, banks, leasing companies or suppliers. Prepare a separate exit budget rather than assuming that your final day trading under the brand will also be your final day of expenditure.

Include payments due during the notice period, liabilities to staff, the removal of signage, remaining stock and the timetable for settling deposits and releasing security. Check whether the agreement provides for an additional early termination fee, when it would become payable and on what basis. A lawyer, rather than just a sales adviser, should assess whether that fee is legally permissible.

Also agree a final settlement procedure: the stocktake date, how amounts due will be documented, the deadline for presenting the closing balance and the process for raising objections. If the network promises to buy back stock, you need rules on which goods qualify, how the price will be set and when payment will be made. A promise of help alone does not guarantee that you will recover your money.

5. Test the agreement against exit scenarios

Before signing, work through two scenarios with a lawyer: voluntarily leaving an unprofitable outlet, and ending the relationship because the franchisor has failed to meet its obligations. For each, record the legal or contractual basis, the evidence required, the method of serving notice, the termination date and any outstanding payments.

It is also possible to end the agreement by mutual consent, but that requires the other party’s agreement. Do not treat future negotiations as a guaranteed exit route.

Practical takeaway: sign only when you can explain how you can leave lawfully, when your obligations will end and what will remain to be settled.