Do you know when your franchise agreement is due to expire?
The initial term of your franchise contract could be anywhere from three to 20 years. But regardless of the amount of time you have left in your contract, it’s important for you to know what happens when that time has elapsed.
Renewal is usually an option, but it isn’t an obligation for the franchisor.
Renewing a Franchise Agreement
If it is your intent to continue operating your franchise, you will likely need to meet certain conditions in order to renew your contract for an additional term.
These conditions, as well as your rights and responsibilities, will be spelled out in the franchise agreement. You may be required to inform the franchisor well in advance of your decision to renew, or risk missing the opportunity. You also may need to satisfy other stipulations, such as upgrading signage or literature or refurbishing the premises.
In many cases, payment of a renewal fee is also mandated by the franchise contract.
Though the franchisor may have a standard renewal agreement, nothing is written in stone. Just as with your original contract, the terms and conditions of your renewal are negotiable — particularly if you are a successful franchisee.
By working with an experienced franchise attorney, you may be able to hammer out a renewal deal with much more favorable terms. At the very least, you will protect the future of your business and the value you gain from your franchise.
Choosing Not to Renew a Franchise Agreement
If, for whatever reason, you decide against renewing your franchise contract, you still have legal obligations to the franchisor.
First and foremost, as soon as your term expires, you must stop operating your business as a franchised outlet. In the majority of franchise systems, this means changing business cards and letterhead, turning over all social media accounts and websites, returning all manuals, handbooks and other materials related to your franchise business to the franchisor, and removing all signage and trade dress, change uniforms and alter other protected business practices. This is all at your cost.
Your franchise contract also likely contains post-termination covenants regarding competition and solicitation of customers.
You may be prohibited from owning or operating a business that competes with your former franchisor for a specified number of years, for example, or you may not be able to seek out your franchised outlet’s customers.
Can a Franchise Agreement Renewal Be Denied?
Franchisors have the right to choose whom they do business with, and if you have failed to comply with the original terms of your franchise agreement, renewal may not be an option.
A franchisor can terminate or refuse to renew a contract if there is good cause for doing so, such as not meeting standards or a failure to satisfy agreed-upon sales quotas or monetary obligations. If you are interested in renewing but your franchisor is ready to cut ties, a franchise attorney may be able to help work out terms that are agreeable to both parties.
If you need assistance with your franchise agreement, contact the experienced professionals at the Franchise & Business Law Group, serving the greater Provo, Utah, area to schedule a consultation.
We will put our extensive experience in business law and franchising to work for you, to ensure that you have the most favorable outcomes possible when renewing your franchise agreement.