Factors Affecting Franchise Agreement Terminations: Lessons for the Franchising Sector
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.
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