For many franchisees, the initial term of their franchise agreement will eventually come to an end, prompting the question: can I renew my franchise agreement? While most franchise agreements include provisions for renewal, the ability to extend your franchise term is dependent on several key factors.
Understanding Franchise Agreement Renewal Terms
Most—but not all—franchise agreements include an initial term and an option for renewal. The specific conditions and requirements for renewal are outlined in the franchise agreement, and franchisees must satisfy these preconditions to secure an extension. These typically include:
- Compliance with the franchise agreement throughout the initial term
- Commitment to re-training, as required by the franchisor
- Upgrading equipment or undertaking a premises fit-out to meet current brand standards
- Entering into the franchisor’s then-current franchise agreement, which may contain revised terms
Failure to meet these requirements can jeopardize a franchisee’s ability to renew, making it crucial to review these obligations well before the agreement expires.
Legal Obligations for Franchise Renewal
Franchisors have a legal obligation under the Franchising Code of Conduct to notify franchisees whether they intend to renew or not. This notification period is typically at least six months before the agreement’s expiration date. This timeframe provides franchisees with the opportunity to review their renewal options, negotiate terms where applicable, and ensure compliance with any preconditions.
The disclosure document provided by the franchisor also contains valuable information about renewal rights. Franchisees should revisit this document in the final period of their term to ensure they meet all renewal requirements and engage with the franchisor early to facilitate the renewal process.
Seeking Legal Advice Before Renewal
One of the most important considerations at renewal is that most franchisors will require franchisees to enter into a new franchise agreement, which may include different terms than the previous agreement. Additionally, changes in the disclosure document could impact the franchisee’s rights and obligations.
At this critical juncture, it is strongly recommended that franchisees undertake a franchise legal review to fully understand the implications of the new agreement. A franchise lawyer can assist in assessing any changes, negotiating more favorable terms where possible, and ensuring compliance with all renewal requirements.
Conclusion
If your franchise agreement includes an option for renewal, taking proactive steps to review your obligations and liaise with your franchisor is essential. Understanding the legal and operational requirements well in advance will help ensure a smooth transition into the renewed term. Given the potential for changes in franchise agreements and disclosure documents, seeking guidance from a franchise lawyer is a prudent step in securing the best possible outcome for your continued business success.