Factors Affecting Franchise Agreement Terminations: Lessons for the Franchising Sector


  • Lorelle Frazer Griffith University, Logan, Australia
  • Andrew Terry University of New South Wales, Sydney, Australia


The practice  of termination  of franchise   agreements  raises  significant  strategic  and  legal issues. This paper aims to provide descriptive information about franchise terminations in relation to which the appropriateness of regulatory responses can be measured. Data were collected from surveys of Australian franchisers in 1998 and 1999 to explore the nature, reasons and outcomes of franchise  agreement terminations.  A model predicting  the likelihood of terminations was developed, based on franchise system maturity, support structures provided, and level of conflict experienced. The results indicate that mature franchises were more  likely  than younger  systems  to experience franchise  terminations.  No  consistent  link was found between the amount of system support or the level of conflict and the incidence of franchise terminations. The data  lends  support  to judicial  responses  to  termination  issues which accommodate the relational aspect of  franchise  relationships  and  addresses termination issues in the context of the underlying relationship and the legitimate business expectations  of the parties.


Download data is not yet available.


Australian Bureau of Statistics. (1993). Australian and New Zealand standard industrial classification. A.B.S. catalogue (No. 1292.0). Canberra, Australia.

Co-ordinated Corporate Services Ltd v. National Video Inc. 82 CPR (2d) 251 at 255. (1984) Dant, R. (1995). Motivation for franchising: Rhetoric versus reality. International Small Business Journal, 14 (I ), 10-32.

Dymocks Franchise Systems (NSW) Pty ltd v. Bi/go/a Enterprises ltd. 8 TCLR 612. ( 1999). Franchising code of conduct. (1998). Department of Workplace Relations and Small Business, Canberra.

Giugni, D., & Terry, A. (1998). Factors in franchise failure: Lessons from the cut price deli l itigation. In F. Lafontaine (Ed.), Franchising research: legal economic and managerial developments. Las Vegas, Nevada: Proceedings of the 12th Conference of the Society of Franchising. (pp. 1-21).

Goetz, C.J. & Scon, R. E. (1981). Principles of relational contracts. 67 V L Rev 1089.

Hadfield, G. K. (1990). Problematic relations: Franchising and the law of incomplete contracts. 42 Stanford law Review 927, p. 944.

Kervin, J.B. ( 1992). Methods for business research. New York: Harper Collins.

Knight, R. M. (1984). The independence of the franchisee entrepreneur. Journal a/ Small Business Management. 22(2) 53-61

Lim, J. & Frazer, L. (In press). Introducing franchising regulation: An analysis of the Australian Franchising Code of Conduct Journal of Marketing Channels, forthcoming.

Manolis, C., Dahlstrom, R., & Nygaard, A. ( 1995). A preliminary investigation of ownership conversions in franchised distribution. Journal of Applied Business Research, 2 (2), 1-9.

Mccosker, C., & Frazer, L. ( I 998). Franchising Australia 1998: A survey of franchising

practices and performance. Toowoomba, Australia: University of Southern Queensland. McCosker, C. (1989). The profile and perfonnance of franchisees. Accounting Research Study 11 . Annidale, Australia: University of New England.

McGlinchey, J., & Thompson, B. (1991 ). What went wrong? In business fonnat franchising in Austral ia. legal Books. Sydney, Australia, pp. 141-1 53.

McNeil, I. (1974). The many futures of contract. 41 S Cal (Rev 691. Mendelsohn, M. (1999). The Guide to Franchising (6th ed). London: Cassell.

Nathan, G. (1 996). Managing the franchiser franchisee relationship. Parramana, Sydney, Austral ia: Franchisers Association of Australia and New Zealand.

Neuman, W. L. (1994). Social research methods (2nd ed). Boston: Allyn & Bacon.

Peterson, A., & Dant, R. ( 1 990). Perceived advantages of the franchise option from the franchisee perspective: Empirical insights from a service franchise. Journal of Small Business Management, 28, 46-61 .

Shennan, A. J. (1993). Bu ilding a foundation for the responsible development of a franchising program. I n R. Dant (Ed.), Excellence '93: A bridge to success. Minneapolis. Proceedings of Society of Franch ising 7th Annual Conference. 1-25

Small Business and Trade Practices Act. ( 1 979). AGPS Canberra, Australia, December. Tabachnick, B.G., & Fidell, L. S. (1996). Using Multivariate Statistics (3rd ed). New York:Harper Collins.

Terry, A. ( 1 993). The distribution of goods and services through business fonnat franchising - (part I ). Current Commercial law, I (I), pp. 18-23.

Trade Practices Act Review Committee Report to the Minister for Business and Consumer Affairs, para 5.1, August ( 1976).

Williamson, 0. E. (1979). Transaction cost economics: The governance of contractual relations. Journal of law and Economics, 22, 233.

Wu lff, Erick B. ( 1999). A critical analysis of the Small Business Franchise Act of 1998. Franchise law Journal, 18, 33.




How to Cite

Frazer, L., & Terry, A. (2002). Factors Affecting Franchise Agreement Terminations: Lessons for the Franchising Sector. Journal of Small Business Strategy (archive Only), 13(1), 105–116. Retrieved from https://libjournals.mtsu.edu/index.php/jsbs/article/view/498



Small Business Brief