Can franchise agreements be terminated at will?

In India, franchise agreements cannot typically be terminated at will by either the franchisor or the franchisee. Termination usually requires a justified cause, such as a significant breach of contract by one party. Common reasons for termination include non-compliance with system standards, financial distress or mutual agreement​​.

The Indian Contract Act, 1872, governs these relationships and mandates that termination clauses be clear and followed meticulously. These clauses often stipulate that the terminating party provide written notice and, in many instances, allow the other party an opportunity to rectify the breach before termination can proceed​​.

Franchise agreements often include specific performance targets that the franchisee must meet. Failure to meet these targets can be grounds for termination by the franchisor. Detailed termination procedures ensure the process is legally sound, requiring documentation of defaults and proper notice to protect both parties from legal disputes​.

In certain cases, if the franchisor has materially breached the contract, such as by failing to provide agreed support or misrepresenting earnings potential, the franchisee might have the right to terminate the agreement, provided the termination procedures outlined in the contract are followed​​.

Terminating a franchise agreement without cause can lead to significant legal and financial repercussions. Both franchisors and franchisees should fully understand their contractual rights and obligations and seek legal advice when considering termination to avoid potential disputes.