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What happens if you default on a franchise agreement?

Starting a business can be tough, which is why many people choose to get into a franchise. A franchise is a business packaged and ready to go. It ties into a well-known brand name, so half of the work of drumming up a customer base is already done for you. Not to mention, the franchiser will have all the systems set up for you.

Buying a franchise can make it much easier to start a business and become successful. However, you must enter into an agreement. According to the International Franchise Association, defaulting on a franchise agreement can be a very costly mistake.

Grounds for default

Before signing your agreement, always make sure you completely understand the grounds for default. You need to ensure that you know the state law concerning such agreements as well. It can be a tricky situation. Typical grounds include not paying fees or an operational default.

Defending a breach

If you breach your contract, you may be able to avoid problems if you have a good defense. For example, you may show the franchisor altered the contract through past actions, such as accepting late payments regularly. You could also show circumstances that made it impossible for you to honor a condition of the contract.


If the franchisor successfully proves you defaulted, you will likely end up having to pay a large amount of money. You also will probably end the relationship and lose your business, including all the investments you made in it.

It is in your best interest to not default. If you think you might, it can be helpful to speak with the franchisor about how you can avoid issues.



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