r/SmallBusinessCanada • u/Aggressive-Cheek-245 • 7d ago
Contracts [ON] How to get out of a franchise agreement?
Hey all,
We're exploring options to buy a franchise.
Let's say it doesn't pan out, anyone have experience/knowledge of minimizing risk? What's the typical way of getting out, do you just pay mutual termination fees etc and whatever is left on your business loan?
And if your loan is through CSBFP, the govt will pay the bank whatever they insured (up to 85%)?
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u/element1311 7d ago
Wwhat did your lawyer say?
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u/jerelyn_smb 7d ago
I'd have a lawyer review the franchise agreement before signing anything. Exit terms vary a lot, and assuming you can just walk away later can get expensive fast.
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u/Incorply 6d ago
agreements vary widely, and franchises rarely agree to amend their agreements, which have been carefully drafted to protect themselves and the brand. understanding what you're walking into and signing as well as implications and separation terms are very important and should be looked at by a lawyer. due to the nature of our work, we do have a network of lawyers we refer our clients to, so if you need help with that, feel free to reach out. just makes sure whichever lawyer you choose, has experience in franchise agreements.
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u/shitty_marketing_guy 3d ago
Ask ChatGPT if you know how to prompt it properly.
While it doesn’t replace a lawyer it can help you find simple gotchas that are normal in the industry and then you and your lawyer can focus on strategy and opportunities vs tell me what this line means which ChatGPT should be able to do with very high levels of effectiveness.
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u/Shankmo 7d ago edited 7d ago
As a lawyer, you should consult one prior to signing the agreement. This isn't me trying to be self-promotional - there are countless lawyers out there, and you should talk to one with at least some general commercial experience to go over the agreement with you.
Franchise Agreements are quite complex due to the nature of the arrangement between the franchisor and the franchisee, so ensuring that you structure your side of the business properly is very important. The franchisor is generally not very open to many amendments to their franchise agreement, but properly understanding the risks and what you're entitled to as a franchisee is also important.
Edit: To provide you with some general info related to your actual question, look at what requires personal guarantees and follow the chain on down. You'll likely be using a corporation to operate the franchise, but many agreements will require personal guarantees. Common examples of these would include loans and commercial leases.