Are there any mandatory termination rights which may override any contractual termination rights? Is there a minimum notice period that the parties must adhere to?
Franchise & Licensing
The provisions of Law 18/03 regarding termination of franchise agreements and potential compensation arising therefrom are mandatory; this means that despite what has been contractually agreed between parties on this matter, whenever this contradicts mandatory provisions of law, the latter shall prevail.
Furthermore, we do confirm the law foresees minimum notice periods for franchise agreements entered for an indefinite period – please see our response to question 18. above. If the parties fail to adhere to such notice periods, proper compensation shall be due from the infringing party.
There are no mandatory termination rights other than franchisees’ ability to rescind the franchise agreement as a result of materially deficient disclosure. In all other cases, the circumstances in which either party may terminate the franchise agreement will be governed by the provisions of such franchise agreement. See Question “6” for further information on the rescission remedy.
There are no mandatory termination rights which may override any contractual termination rights. Likewise, there is no minimum notice period that the parties must adhere to, although termination or non-renewal notice would typically be served with no less than 6 month in advance to effective termination date.
Danish law does not require a minimum notice period for the parties to terminate a franchise agreement and the parties are therefore free to agree the notice period. As regards franchising, there are no mandatory termination rights, which may override the contractual termination rights, however, if a short notice period has been agreed, the courts may in rare circumstances establish a reasonable notice period applying section 36 of the Contracts Act.
If the parties have not agreed a notice period, the franchise agreement may be terminated with a reasonable notice period considering all circumstances, including the duration of the franchise relationship. A notice period of six months is normally considered reasonable also in situations where the parties' relationship has lasted for several years (according to case law also if it has lasted more than 20 years).
There is only one mandatory termination right applicable to franchise agreements with the term of ten (10) or more years described above.
As a general rule, Article (147) of the Egyptian Civil Code, provides that the contract is the law of the contracting parties, and shall not be revoked or amended except with the consent of the parties or for the reasons prescribed by law, and as explained previously due to the fact that there is no specific law regulating the franchise transaction, we shall revert back to the provisions organising the formation of the contract and termination thereof as stipulated under the Egyptian Civil Code. In this regard, the Egyptian Civil Code indicates that the following reasons are considered to be mandatory regarding termination rights:
1- The non-existence of the capacity to any of the contracting parties.
2- If the object of the obligation is something impossible in itself, the contract shall be null and void.
3- If the obligation has no cause, or its cause constitutes a violation of public order or moral, the contract shall be null and void.
4- In the contracts binding two parties, if the obligation is terminated based on the impossibility of its execution, the counter obligations shall be terminated concurrently and the contract shall be revoked automatically.
If the contract is terminated due to any of the above mentioned reasons, there is no minimum notice period since the contract is terminated by the force of law. However, if the termination is based on contractual right, the notice period shall be as agreed in the agreement provided it shall be reasonable.
In the event that P.D. 219/1991 on commercial agency agreements is deemed to apply by analogy to a franchise agreement of indefinite term (see Q. 15), the following minimum notice periods must be adhered to (art. 8 of P.D. 219/1991): one month for the first year of the contract, two months for the second year commenced, three months for the third year commenced, four months for the fourth year commenced, five months for the fifth year commenced and six months for the sixth year commenced and the subsequent years. The parties may not agree on shorter periods of notice. If the parties agree on longer periods of notice, the period of notice to be observed by the franchisor must not be shorter than that to be observed by the franchisee. Unless otherwise agreed by the parties, the end of the period of notice must coincide with the end of a calendar month.
If the franchise agreement does not specify circumstances under which the agreement may be terminated in advance, the provisions of the FCC will result applicable.
The FCC establishes that if a party breaches its obligations under an agreement while the other party is in compliance with its own obligations, the non-defaulting party is entitled to request from the competent courts the rescission of the agreement based on the breach by the defaulting party, as well as the payment of damages and losses.
Furthermore, if due to force majeure or acts of God, the compliance with the contractual obligations is made impossible, any of the parties may request the judicial authority to declare the termination of the agreement without fault and responsibility for either party.
Finally, in case the agreement was executed for an undetermined period of time, any of the parties may terminate it by means of a notice to the other party. Even though there is no specific term established for the delivery of such notice, it is common practice in Mexico to deliver it at least 30 calendar days prior to the effective date of the termination.
Mandatory termination rights can be as per the below:
- If the exclusivity clause is not specified in time and place
- If the agreement lacks substantial elements
- If the agreement is contrary to public order
- Impossibility of implementation of contractual obligations
Yes. For example, the franchisee has the right to unilaterally terminate the agreement upon the lapses of a fixed term after the agreement is concluded, and the franchisee may terminate the franchise agreement where the franchisor has concealed any relevant information or provided false information. There is no mandatory minimum notice period for the parties.
There are no mandatory termination rights that may override any contractual termination rights. The Civil Code states that the parties can freely determine the content of the agreement, provided that it is not contrary to current legislation.
There are no mandatory provisions governing the rights of either party after their franchise agreement has expired or has otherwise been terminated. Likewise, there is no mandatory minimum notice period which the parties must observe prior to such termination.
However, if the franchise agreement is such as would make it a technology transfer arrangement under the IP Code, a provision therein which restricts the use of the technology supplied post-termination shall be unenforceable if it would have an adverse effect on competition and trade.
The answer to the two questions is no.
Franchisor may terminate a contract at any time if the franchise agreement has been concluded for an indefinite term. In such a case, a six (6) months’ written notice is required, unless the contract indicates a longer term for the advance termination notice. If the contract provides for a specific validity period, the franchisor must be guided by the terms of the franchise agreement.
Either party to the contract concluded for a definite or indefinite term, including the franchisor, may terminate the franchise agreement by sending written notice to the other party within 30 days. This option is available only if the contract provides for the release of certain monetary compensation.
The franchisor may terminate the franchise agreement if the franchisee produces goods of inferior quality or the quality of its services does not correspond to what has been set out in the contract. The franchisor may also repudiate from the franchise agreement if the franchisee does not follow the franchisor’s instructions and guidance aimed at compliance with the contractual provisions relating to the terms and conditions on the use of the franchised set of IP rights. The franchisor may cancel the franchise agreement if the franchisee fails to settle the franchise fees on the terms and conditions set out in the contract. Termination or repudiation by the franchisor is available if the franchisee fails to remedy the breach within a reasonable term, or has committed another breach within a year of receipt of the written notice from the franchisor.
Further, if the franchisee becomes insolvent (bankrupt) the franchise agreement must be dissolved.
The earlier termination of franchise agreement is subject to mandatory registration with Rospatent. Absent registration, the earlier termination will not be effectuated.
Referring to the response to item 7 and 13 above, there are some general mandatory termination rights under Norwegian contract law. Agreements may be terminated if deemed to be invalid, for examples if it would be considered 'unreasonable or contrary to good business practice' to uphold the agreement. An agreement may also be terminated as invalid if it would be considered in defiance of honesty and good faith. For more an elaborative response on the 'good faith'-standard, see response to item 13 above.
There is no fixed minimum notice period that the parties must adhere to, but any agreed minimum notice period should be determined on the basis of what would be considered reasonable. In such case, the notice period for the rent of the commercial property on which the franchisee is operating could be take into consideration. Notice periods for termination of employment agreements and termination consequences of other relevant contractual obligations for the franchisee may also be object to consideration.
Almost all of the 23 U.S. jurisdictions which feature franchise “relationship” laws (i.e., Alaska, Arkansas, California, Connecticut, Delaware, Hawaii, Illinois, Indiana, Iowa, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, Rhode Island, South Dakota, Virginia, Washington, Wisconsin, the District of Columbia, the U.S. Virgin Islands and Puerto Rico) regulate termination of the franchise relationship by the franchisor. These statutes vary from state to state, but most require the franchisor to have “good cause” in order to terminate (though the definition of “good cause” varies) and to provide notice and an opportunity to cure in advance of termination.
While the definitions of “good cause” vary, they generally include a failure to comply with the lawful and material provisions of the franchise agreement. Some states go further and outline specific situations constituting “good cause” for termination, such as (depending on the particular state) a franchisee’s bankruptcy, abandonment of the franchised unit, failure to pay amounts due, material impairment of the goodwill of the franchise system or the franchise trademarks and/or repeated defaults of the franchise agreement.
In addition to requiring that the franchisor have good cause for termination, many state statutes also specify mandatory minimum cure periods and prior notice periods with which franchisors must comply. While the particular requirements of each state statute vary, three general trends exist. First, a number of states do not require a cure period at all but do require notice of termination (also known as a “wind down” period), varying from 60-120 days. Second, some states mandate a “reasonable” cure period but do not specify the particular period of time that is deemed reasonable. Finally, some states require a specific number of days that the franchisor must afford to the franchisee to cure, ranging from 30 to 90 days, depending on the state and the type of default at issue. Importantly, a number of these statutes specifically exclude incurable defaults. By way of example, the State of Washington permits termination without notice or opportunity to cure where the franchisee: (i) is bankrupt or insolvent; (ii) assigns the assets of the franchised business to creditors; (iii) voluntarily abandons the franchised business; or, (iv) is convicted of violating any law relating to the franchised business.
Given the varying particularities of each state’s laws, rules and regulations governing termination, before issuing a default or termination notice, a franchisor should always consider whether any (and if so, which) state laws may be triggered (by analysing where the franchisor is headquartered, where the franchisee is domiciled, where the franchised business is operated, and where the offer and sale originated from/was directed to); review such law (if any); and, determine whether there are procedural or other requirements with which the franchisor must comply in order to properly effectuate a default and/or termination notice. In those states where a franchisor’s right to immediately terminate if a franchisee commits an incurable default is not expressly addressed by state statute, or a franchisor believes a particular situation is so time sensitive that it would be imprudent to comply with statutory notice and/or cure provisions, the franchisor must ultimately weigh their urgency against the risk of a franchisee claim for unlawful termination.
The Franchise Law does not foresee any specific provisions governing the termination of franchise agreements (it only requires that the terms for the termination should be expressly indicated in the agreement). Reference is therefore to be made to the general provisions of the Civil Code and to the contractual provisions.
Although it is not common for the franchisee to be provided with an express right of termination under the franchise agreement, the franchisee has a common law right to terminate a franchise relationship where the franchisor has committed a repudiatory breach of the contract. In order for a franchisee to exercise this termination right, it must provide clear evidence that the franchisor (through its actions) no longer wishes to be bound by the franchise agreement. This is a high threshold.