Franchise agreement term lengths and future changes are important in your franchise operation and understanding them is critical for your success as a franchisee or franchisor. Your franchise agreement should provide a clear roadmap for both the operation of the franchise and the relationship of the involved parties.
Before entering into any franchise agreement, you will want to pay special attention to two major terms – the length of the agreement and how the agreement can change over time.
Franchise Agreements Are Generally Long-Term Deals
The length of a franchise agreement will vary on a case-by-case basis, but most agreements are long-term deals. Standard franchise agreement lengths can last 10 to 20 years or longer. Many franchise agreements include options for the franchisee to renew or extend the length of the agreement with proper notice. For example, you may have a franchise agreement with an initial 10-year term and two 5-year renewal options, for a possible 20-year term.
Both parties in a franchise agreement often prefer a longer term length for stability. A franchisor benefits from the stability of steady income through franchise fees that the franchisor can use to continue the growth of the brand. For franchisees, buying a franchise often requires a large initial investment with an expectation of returns over time. A long-term deal ensures the franchisee will receive the benefits of the franchise brand and realize a positive return on that investment.
How Franchise Agreements Can Change Over Time
The terms of a franchise agreement won’t usually change without the consent of both the franchisor and franchisee. However, many agreements give the franchisor discretion to make future decisions regarding the franchise that can effectively change the agreement in the future. The discretion given in an agreement can drastically alter the outlook of the agreement through increased costs and other commitments.
You will want to carefully look for these provisions to anticipate the ways your franchise agreement could evolve over time. Other terms of the agreement become increasingly important when a party exercises their discretion to change the terms of the deal (i.e., conflict resolution and termination rights).
Reviewing and Negotiating Franchise Agreements
Franchise agreements are the cornerstone of a successful franchise venture. It’s important to carefully read and understand the franchise agreement term lengths and future changes of your agreement.
The attorneys at Franchise & Business Law Group take pride in their ability to provide a detailed analysis of your franchise agreement that allows you to move forward with a clear understanding of your rights and obligations. If you have questions about the terms or negotiation of your franchise agreement, please contact our office to see how our services can help you.
Schedule a consultation with Franchise & Business Law Group today.