Franchise agreements: how to plan for the end of the relationship

When turning an established business into a franchise network, it is easy to focus on opening more outlets. Yet your first agreement should also explain how the relationship ends. A well-planned exit protects the brand, customers and the franchisee’s investment. It is not a declaration of distrust, but a way to reduce disputes when business conditions or the parties’ expectations change.

1. Distinguish between expiry and termination

Poland has no standalone statute comprehensively regulating franchising. A franchise agreement remains an ‘unnamed contract’ — one not specifically defined by statute — entered into under the principle of freedom of contract in Article 353¹ of the Polish Civil Code. That freedom is limited by legislation, the nature of the legal relationship and principles of social conduct. Competition law, unfair competition rules, industrial property law and personal data protection rules also matter.

There is no dedicated franchise register or general statutory requirement to provide prospective franchisees with a disclosure document within a franchise-specific timeframe. Proposed legislation should not be treated as law already in force. The European Code of Ethics for Franchising is a self-regulatory standard, not legislation; its relevance may arise from membership of an organisation or contractual commitments.

Distinguish between three situations in the agreement:

• Expiry of the agreed term — state whether the relationship ends automatically and how the parties agree any renewal.
• Termination on notice — specify when this is permitted, how the notice period is calculated and how notice must be served.
• Termination by mutual agreement — allow the parties to agree a tailored timetable for closing or transferring the outlet.

Address termination with immediate effect separately. The exit provisions should reflect the duration of the agreement and the scale of the franchisee’s investment. For a fixed-term agreement, it is particularly important to define the grounds for early termination precisely and check their legal enforceability.

2. Design a procedure for remedying breaches before ending the relationship

Not every departure from standards justifies immediate termination. A single missed report, recurring payment arrears and deliberate disclosure of confidential know-how are different situations. The agreement should reflect their seriousness and whether their consequences can be remedied.

For breaches that can be remedied, set out a sequence of steps: documenting the problem, issuing a written notice, allowing a remedy period and assessing compliance with the required action. The notice should identify the specific obligation, evidence of the breach and the expected outcome. Avoid vague phrases such as ‘loss of trust’ unless you explain what conduct could justify it.

The procedure must work both ways. The franchisee also needs a route for raising concerns when the franchisor fails to provide the agreed support or access to essential systems. Describe how to report the issue, who is responsible for handling it and the consequences of failing to respond.

Test the procedure against a scenario in your own business: who will receive the notice while the owner is on holiday? How will you confirm delivery? Does gathering evidence require access to a system that has already been blocked? Details like these often determine whether the provisions can work in practice.

3. Decide what happens to the outlet and its assets

The end of a brand licence does not automatically mean taking over the franchisee’s premises, stock or equipment. Prepare an inventory of the assets used at the outlet and establish who owns them and on what basis they are used.

For each category, answer these practical questions:

• Must equipment be returned, can it be bought back, or does it remain the franchisee’s property?
• Who removes signs and branding and restores the premises’ appearance?
• How will you account for saleable stock, expired goods and goods ordered before notice was given?
• Who bears the costs of transport, dismantling and removing data from devices?

If you provide for buying back stock or equipment, specify the eligibility criteria, valuation method, payment deadline and collection procedure. Simply stating ‘at market value’ may not be enough to prevent a dispute.

Also check the agreements with the landlord and suppliers. A franchise agreement does not replace any consent required to take over contractual obligations. Do not promise to release the franchisee from a lease if that decision rests with the landlord.

4. Safeguard continuity of customer service and protect data

Customers should not first learn that the relationship has ended when they come to collect an order. Establish who will handle outstanding orders, complaints, advance payments, vouchers and prepaid services. Internal financial arrangements between the businesses must not deprive customers of their statutory rights.

Prepare a communications plan: when the announcement will be made, who will approve it and how online business listings and contact channels will be updated. The message should clearly explain where customers can get help, without publicly apportioning blame for the split.

The customer database does not automatically transfer to the franchisor. Establish the parties’ roles under the EU General Data Protection Regulation (GDPR), the legal basis for any data transfer and the information they must provide to individuals. Separate data needed to fulfil contracts or defend claims from data used for marketing. The timetable for disabling accounts should allow for lawful archiving of records.

5. Settle the final accounts and review post-termination restrictions

Provide for a final statement of amounts due, settlement of any security arrangements and a deadline for raising objections. Under Polish law, a contractual penalty can secure a non-monetary obligation, but cannot be used to penalise late payment itself. Its amount and the circumstances in which it applies require legal assessment.

Distinguish between confidentiality obligations relating to know-how and non-compete restrictions. A post-termination non-compete clause requires particular scrutiny under competition law, including the relevant EU rules. Do not assume that an excessively broad restriction will be enforceable simply because the franchisee signed it.

Practical takeaway: before signing your first agreement, prepare a one-page exit plan listing each task, the person responsible, the deadline and evidence of completion. Then check with a lawyer that the agreement actually allows you to put that plan into practice.