Renewing your franchise agreement is a crucial step in continuing your business. It involves several considerations and steps to ensure everything goes smoothly. Let’s explore the key aspects of the franchise renewal process.
Check Your Franchise Agreement
Not all franchise agreements include an option term for renewal. If your agreement doesn’t have this, there is no right to renew. The first step is to check your franchise agreement. A franchise lawyer can help you understand the specifics. If there’s no renewal option, you’ll need to negotiate a new agreement with the franchisor.
Conditions on Renewal
Almost all franchise agreements come with various conditions for renewal. Common conditions include:
- Notice Requirement: You must provide notice of your intention to renew within a designated time frame.
- Upgrades: You may need to upgrade premises or equipment to meet current standards.
- Training: Additional training might be required to ensure you’re up-to-date with the latest practices.
- Renewal Fee: Paying a renewal fee is often part of the process.
- Compliance with the franchise agreement: Typically, a Franchisee must have substantially complied with the franchise agreement to have a right to renew.
- Enter into the franchisors ‘then-current’ Agreement: Most franchisors will require the franchisee enter into a new form of franchise agreement to apply during the renewal term.
The Code requires Franchisors to issue a renewal notice at least 6 months before the end of the Term. Here, a Franchisor will typically set out what they require to proceed with the renewal.
Fixed Premises Franchises and Upgrades
For fixed premises franchises, franchisors typically use the renewal process to enforce upgrades to new branding and similar requirements. They might not renew the agreement until these upgrades are completed. This means the agreement might go into holding over, where it typically continues on a month to month basis. During this period, you continue operating under the existing terms until the renewal is finalized. Consulting with a franchise lawyer can help you manage this transition and avoid potential pitfalls.
Business Relationships Over Legalities
Despite the terms in the franchise agreement, most franchisors prioritize the business relationship over legal technicalities, but there are of course no guarantees. If everything is going well, they usually want to continue the partnership. This pragmatic approach often means that as long as your franchise is performing well, and you’re in compliance with the major terms, the franchisor will likely support your renewal. A franchise lawyer can assist in ensuring both legal and business aspects are aligned for a smooth renewal.
Franchisors will also be subject to the obligation of good faith in the renewal process, discussed in our article here. If a Franchisor unfairly refuses to renew, this could potentially be a breach of this statutory obligation.
Lease and Franchise Terms Alignment
Typically, but not always, the lease and franchise terms will mirror each other, meaning the lease renewal will occur at the same time as the franchise one. Here, the lease should be checked, and just like with the franchise agreement, the renewal conditions should be noted. These typically include redecoration and potentially a market rent review. Ensuring both the lease and franchise agreements are aligned can prevent any disruptions in your business operations. A franchise lawyer can help you understand and meet the renewal conditions for both agreements.
Be Prepared for Renewal
Preparation is key to a successful renewal process. Start planning at least a year before your franchise agreement expires. Diarise important dates and create a specific renewal plan. This should include:
- Reviewing the franchise agreement with a franchise lawyer.
- Meeting all renewal conditions, such as upgrades, training, and fee payments.
- Maintaining clear communication with your franchisor to ensure alignment.
Being proactive can make the renewal process straightforward and stress-free. A franchise lawyer can guide you through each step, ensuring you meet all obligations and continue your franchise smoothly.
Conclusion
Renewing your franchise agreement involves checking your current agreement, meeting renewal conditions, and sometimes undertaking upgrades. Fixed premises franchises often require updates to branding and equipment as part of the renewal. However, most franchisors value ongoing business relationships and are likely to support renewal if the franchise is performing well. Preparation and planning, with the help of a franchise lawyer, can ensure a smooth renewal process. Being proactive and organized will help you meet all requirements and continue your successful franchise journey.