Franchise Owners Termination: What You Need to Know in 2026
Franchise termination can be one of the most stressful and expensive events for a franchise owner. Understanding how the process works — and how to protect yourself — is critical. In this guide, I share practical insights from my experience as both a former franchise owner and a franchise attorney.
How Franchisors Calculate Liquidated Damages
When a franchise agreement is terminated, franchisors typically calculate liquidated damages by taking the remaining term of the agreement and applying a royalties formula. This often includes:
A minimum monthly royalty amount;
Additional royalties that would have been paid;
Attorney’s fees;
Administrative fees and other incidentals;
along with potentially other costs.
These amounts can add up quickly, sometimes reaching six figures depending on the length of the remaining term.
Other Major Liabilities Franchise Owners Face
Termination rarely stops at the franchise agreement. You may also be responsible for:
Commercial lease obligations — Many locations have multi-year leases that survive termination.
Bank loans or financing — Equipment, build-out, or working capital loans often remain your responsibility.
These three areas (franchise agreement, lease, and lender obligations) represent the biggest sources of exposure for most franchise clients I work with.
How to Reduce What You Owe
The good news? These outcomes are often negotiable. My approach focuses on:
Creating leverage during negotiations;
Identifying potential breaches by the franchisor;
Structuring settlements that significantly reduce the total amount owed; and
Situationally dependent variables based upon the client's unique situation.
For example, I’ve successfully negotiated settlements that cut a multiple six-figure liquidated damages claim down to a few thousand dollars — a far more manageable outcome for the franchisee.
Key Takeaway
If you’re considering terminating your franchise agreement (or facing termination), acting early with experienced counsel can save you substantial money and stress. A well-negotiated exit can mean the difference between a manageable resolution and a financially devastating one.
Ready to discuss your situation? Contact Craig Morgan Law, PLLC today for practical, experienced representation in franchise matters. Attorney Craig Morgan is an experienced franchise attorney and former franchisee.
📞 (704) 325-9075
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Every franchise situation is unique. Consult with a qualified attorney to evaluate your specific circumstances.
