Before you become a franchise owner, you are required to sign a franchise agreement. Also known as a franchise contract, it contains a series of documents which highlight the rules, terms, and conditions that’ll outline the relationship between you and the franchisor and the franchisee. One of the key provisions in the agreement refers to the terms for renewing your agreement beyond your initial (typically 10 year) contract.
Franchise agreements are typically long, detailed and complicated, so it's a document you want to thoroughly read before signing. One of the most overlooked sections of the agreement is the franchise agreement renewal. This article is dedicated to this topic.
What are Franchise Renewals?
Every franchise contract or agreement expires after a given period of time. This is usually after 5, 10, 15 or 20 years. When the agreement period ends, you have an option of renewing the contract or discontinuing your franchise altogether. The terms and conditions of renewing a franchise agreement are contained in a provision called renewal rights.
Franchise renewals explain why a franchise agreement can be terminated and how it can be renewed when the term is over.
The Arbitration Clause exists if the franchisee and franchisor have a dispute or conflict. An Arbitration clause or provision is designed specifically to prevent either the franchisor or the franchisee from pursuing a case in a court of law. However, a court arbitrator can review the clause and the case before signing the agreement or moving forward.
Like the franchise agreement itself, the terms and conditions of contract renewals or termination can be negotiated. That is if the agreement is negotiable in the first place.
Grounds for Agreement Renewals
The choice to renew a franchise contract is usually up to you. For example, there are certain things that can work in your favor. But, you have to meet renewal conditions. The agreement may include:
- Paying the renewal fee
- You are in excellent standing with the existing agreement
- You have notified the franchisor of your interest in renewal. (Typically, six months prior to the end of the term.)
- You have renewed the lease on the location
- Your team has finished current training
- You’ve upgraded your store to meet current specifications, standards, and brand compliance
How to Improve your Chances of Agreement Renewal
One way to increase your chances of renewing your contract is begin the negotiation process early. Notify the franchisor and tell them about your intentions to renew. Then, start the process of negotiating clear renewal terms. Secondly, remain in good standing with the franchisor. A positive business relationship is more likely to be successful and continue to grow.