Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
58th UIA Congress Florence
Contract Law – Commission
November 1st , 2014
Terminating a Franchise AgreementWhat are the issues that a franchisor must look out for?
Claudio Arturo
Vienna, Austria
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Which preliminary questions have to be considered
when discussing a termination scenario?
1.
Applicable Law
2.
Jurisdiction Clause
venue: state court vs. arbitration
3.
Will a court decision made according to 1. and 2. be
enforceable in the country of residence of the franchisee or
at least in the country where the franchisee's assets are
located?
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Ways of termination of a Franchise Agreement

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
Expiration of its term
(Ordinary) notice of termination according
to terms set in the agreement
Extraordinary termination for good cause
- according to applicable law independent from contractual
agreement, in Austria e.g. any cause that makes it
unreasonable/unacceptable to continue the agreement
- for causes that are expressly mentioned on in the agreement
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Example of content of a termination clause
State whether the list of important reasons is exclusively enumerated or "in particular"
1. With immediate effect, if
2. After the expiry of a grace period of … with
effect on ...,
1.1 insolvency proceedings
1.2 default with a payment under this Agreement
2.1 no longer able to fulfill this Agreement for
whatever reasons;
1.3 default to pay to a Third Party
2.2 Non-compliance with Franchisor`s CI
1.4 violation or attack of the Intellectual Property
2.3. Non-compliance with public authoritie's rules
1.5 Change of control
2.4 Violation of non-competition clause
1.6 key person is no longer available
2.5 Violation of confidentiality agreements
1.7 minimum turnover
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Interests of franchisor for time after termination?
- non competition
- reputation
- confidentiality
- protection of the business concept
- avoiding massive sale of branded products
- investment recovery
- setting scenery for new franchise partners
other interests
in the discussion
➨ Provisions in the Franchise Agreement in order to cover such
interests: see following example
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Examples of important clauses for time after termination in favor of
Franchisor
After termination for whatsoever reasons (expiry, termination, earlytermination, assignment)
-> Franchisee should have e.g. the following obligations:
2.1 refrain from any use of the Intellectual
Property
2.2 return to the Franchisor all documents
and any other objects
2.3 irrevocably offers to the Franchisor the
repurchase of all objects owned by him
at the termination of this Agreement or
thereafter acquired from the Franchisor
[e.g. fashion store]
2.4 to recover or, respectively, to modify the
objects [e.g. theme restaurant]
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2.5 All claims for receivables of the Franchisor
against the Franchisee become immediately
payable
2.6 transfer of the customers to the Franchisor or a
new distribution partner
2.7 enter into the rental agreement or may indicate
a third party to enter
2.8 franchisee shall destroy all secret information
2.9 to keep all secrets and any other confidential
information
2.10 pay back all investments according to
calculation rule
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Terminating a Franchise Agreement
Franchisor's point of view
Claudio Arturo
Case decided by Austrian Supreme Court (4 Ob 321/87)
“STEFANEL”
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Fashion Store – Italian Franchisor and Austrian Franchisee
Franchisee sold Jeans of other suppliers (only in a very small number) which
was not allowed according to the Agreement, as customers wanted bleached
jeans and Franchisor could not deliver
No good cause for extraordinary termination as violation was only insignificant
and not unreasonable.

=>Therefore recommendable to define expressly in the agreement such
violations as good cause for termination
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Terminating a Franchise Agreement
Franchisor's point of view
Thank you!
Dr. Claudio Arturo
PETSCH FROSCH KLEIN ARTURO
Rechtsanwälte
Esslinggasse 5, 1010 Wien
T +43 1 586 2180, F +43 1 586 2235
claudio.arturo@pfka.eu
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Claudio Arturo