Buying into a franchise venture such as owning a chain of restaurants in Texas generally requires a proprietor to enter into a contract with the franchisor. Either party may file a legal action when there is reason to believe that a breach of the franchise agreement has occurred. The lawsuit may seek damages in addition to terminating the business or selling it back to the franchisor or another entrepreneur.
The company that provides a license granting the right to do business under its brand name may have specific terms to abide by when operating as a franchisee. The contractual agreement may contain several provisions describing when a franchisor could move to terminate the contract with a franchisee and vice versa.
Breaches that may lead to a franchisor seeking termination of a contract include refusing to pay franchise fees, insolvency or bankruptcy and neglecting the business. When a popular fast food franchisor received complaints of one of its franchisees failing to keep a restaurant clean, it terminated its franchise agreement and closed the location.
The company then filed a lawsuit to compel the franchisor to remove its brand name from all of the 37 locations that he operated throughout the Lone Star State. As reported by Restaurant Business, the parties settled the matter without closing any additional franchised restaurants owned and operated by the franchisee.
The franchisor claimed in its lawsuit that the franchise agreement terminated immediately upon the franchisee’s gross negligence and he continued to operate his restaurants in breach of their contract. The franchisee, however, was able to prove that it was “improper” to terminate an agreement based on one location’s issue, a circumstance which did not reflect upon his 37 other locations.