All franchise agreements expire. While the goal of buying a franchise is to build a sustainable business that generates profits for years to come, the reality is that many franchisees struggle to recoup their initial investment before their initial term expires.
If the initial term of your franchise agreement is about to expire, what do you need to know about renewal? Here are answers to some frequently-asked questions (FAQs):
Answers to Frequently-Asked Questions (FAQs) about Franchise Renewal
Q: Can my franchisor refuse to renew my franchise agreement?
In general, a franchisee’s “right” to renew is subject to a laundry list of conditions set forth in the franchise agreement. If you fail to satisfy any of these conditions by the date your original franchise agreement expires, then your franchisor may refuse to renew your franchise. State franchise laws provide protections against bad-faith refusals to renew in some cases.
Q: What do I have to do in order to exercise my right to renew?
In order to exercise your “right” to renew, you must satisfy all of the renewal conditions stated in your franchise agreement before your initial term expires. Minimally, this will likely mean curing any outstanding payment deficiencies, updating to current system standards, and signing the franchisor’s “then-current” form of franchise agreement.
Q: Will I be required to sign a new franchise agreement in order to renew?
In most cases, yes. Franchisors generally include execution of their “then-current” franchise agreement as a condition of renewal. However, while you may be required to sign, you also have every right to negotiate just as you did when you signed your original franchise agreement.
Q: Can my franchisor raise my royalties and advertising fees at the time of renewal?
Unfortunately, yes. Unless you negotiated a protection against your franchisor raising your rates in your initial franchise agreement, there is nothing that prohibits your franchisor from raising your royalty and advertising fees at the time of renewal.
Q: What can I do if my franchisor has told me it won’t renew my franchise?
If you wish to renew and your franchisor has told you that it will not be offering you a renewal franchise agreement, you should speak with a franchisee attorney promptly. You may have remedies available, and taking action before your franchise agreement expires will give you a better chance to protect your franchise.
Q: How long will my franchise renewal last? Can I renew on a “at-will” basis?
The term of your renewal franchise should be stated your new franchise agreement. You may also have some flexibility to negotiate the renewal term; however, franchisors generally will not renew on an “at-will” basis.
Q: Can I opt out of renewing if I am dissatisfied with my franchise?
Yes. As a franchisee, it is up to you whether to pursue renewal of your franchise agreement. If you are dissatisfied with your franchise, you can simply let your franchise agreement expire. Be aware, however, that you are likely to be subject to a variety of post-termination obligations.
Speak With National Franchisee Attorney Jeffrey M. Goldstein
Is your franchise agreement about to expire? Do you have questions about your “right” to renew? For a free and confidential consultation with national franchisee attorney Jeffrey M. Goldstein, please call 202-293-3947 or request an appointment online today.
