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Termination Issues

There are no restrictions on the rights of a franchisor to terminate a franchise agreement or to grant a new franchise to another person for the same location or territory after the franchise has expired. It is advisable that the termination notice be done in writing in order to preserve ad probationem form. There are no limitations on what grounds may be specified in a franchise agreement for termination of a franchise, for non-extension of an expired franchise or for the franchisor’s right to refuse to grant another franchise to the original franchisee. The death or permanent disability of a franchisee, or the principal or managing owner of the franchisee are the proper grounds for termination of the franchise. The franchisor is not required by the operations of law to purchase inventory from or pay any other compensation to a franchisee upon termination or non-extension of its franchise or the franchisor’s refusal to grant another franchise to the franchisee. If a franchisor owns the real estate at which the franchisee’s business is located, the franchisor may take over and operate the business formerly operated by the franchisee after the franchise agreement has been terminated or has expired.

The franchisor may take over and operate the franchisee’s business after the termination or expiration of the franchise by exercising: (1) an option to purchase the real estate at which the franchisee’s business is located; (2) an option to acquire the lease for such real estate; or (3) an option to buy the franchisee’s business. If the prices to be paid upon the exercise of any of these options are drastically outside the fair market prices they might, in event of a dispute, be viewed by the court with the use of the principle of so called rules of the social cohabitation.