Your franchise agreement is about to expire. You have reviewed the renewal conditions in your franchise agreement, and you are pretty sure that you have done everything that is required in order to extend your franchise for another term. So, why does your franchisor seem to be the only thing standing in the way?
There are a few potential reasons why your franchisor may not want to renew your franchise agreement. Understanding these reasons will help you make informed decisions about your next steps forward.
3 Reasons Why Franchisors Try to Prevent Renewal
Although individual circumstances can vary, there are three primary reasons why a franchisor may not want to grant a renewal term to a particular franchisee. These reasons are:
- To Grant the Territory to a More-Favored Franchisee – Whether you have struggled to consistently meet your royalty and advertising fee obligations, an existing (and more profitable franchisee) has expressed interest in your franchise, or a new prospect is interested in your territory and appears to be more attractive franchise owner, your franchisor may be trying to remove you from the system in order to make room for a more-favored franchisee.
- To Take Over Your Territory for Itself – If your territory has been particularly profitable, your franchisor may want to take over the territory for itself. It may be that your franchisor wants to let your franchise agreement expire so that it can open a new company-owned location.
- To Offer an Area Development Agreement to a Larger Franchisee – A third alternative is that the franchisor is interested in offering an area development agreement to a larger (and well-funded) multi-unit franchisee. It may be that your territory falls within a broader area that the franchisor is hoping to develop, and that it is seeking to offer the entire area to a new developer.
What Can You Do if Your Franchisor is Refusing to Renew?
If your franchisor is refusing to renew, you will need to quickly assess your options and pursue a strategy for keeping your franchise before your franchise agreement expires. Once your initial term comes to an end, it can become much more difficult to “re-start” your franchise even if you are on solid legal ground.
In some states, franchise relationship laws prevent franchisors from refusing to renew without “good cause.” Generally speaking, “good cause” means things like non-payment of royalties or failure to comply with brand standards – not a desire to grant your territory to someone else. Some franchise agreements will prohibit non-renewal in the absence of “good cause” as well, although this is not particularly common.
Ultimately, your options will be dictated by the laws in your state and the terms of your franchise agreement. To ensure that you have every possible opportunity to protect your franchise, you should speak with an experienced franchisee attorney right away.
Schedule a Confidential Initial Consultation at the Goldstein Law Firm
To discuss your situation with national franchisee attorney Jeffrey M. Goldstein, please call 202-293-3947 or contact us online. We will schedule your confidential initial consultation as soon as possible.