When you purchased your franchise, hopefully you went into it with the understanding that, at some point, your franchise rights would come to an end. If that time has come, you need to make a decision about what you are going to do next. At a high level, you have two primary options. You can either:
- Let your franchise agreement expire; or,
- Seek to renew for another franchise term.
Letting Your Franchise Agreement Expire
If you are ready for your franchise venture to come to an end, you may simply choose to let your franchise agreement expire. But, before you do, there are a few key provisions in most franchise agreements that you will want to keep in mind:
- Non-Competition. It is very possible that your franchise agreement contains a “non-competition” covenant that prevents you from competing with the franchisor and its other franchisees. What exactly it means to “compete” will depend on the specific language in your contract. But, at a minimum, you can generally expect to be prohibited from opening a similar type of business within a certain radius of your franchised outlet for at least a couple of years.
- Non-Solicitation. In addition to non-competition covenants, most franchise agreements also include provisions that prohibit solicitation of your franchise customers – for any business whatsoever. That customer list that you thought was yours? It actually belongs to your franchisor.
- Post-Termination Obligations. When your franchise expires, you will be expected to completely de-brand and stop use of any and all aspects of the franchisor’s system. Almost invariably, anything branded or proprietary will need to be returned, and if you keep your location for another (non-competing) business, you will need to make sure that your premises are devoid of any indication that you used to own a franchise.
Seeking to Renew
If you decide to renew, one of the first things you need to make sure of is that it is not already too late to do so. Among the many conditions of renewal, most franchise agreements require the franchisee to provide notice (by a specific delivery method and to a specific address) at least a minimum number of days prior to the expiration of the term. Some franchise agreements even have specific renewal windows (e.g., you must provide notice between 120 and 60 days prior to expiration.) *
With increasing frequency, franchisors are adding in other renewal conditions as well. One such condition is the requirement to renew on the franchisor’s “then-current” terms. This means that, instead of continuing under your existing franchise agreement, you will have to try to negotiate a new agreement – most likely with a new royalty and other less-favorable terms.
*Some states’ franchise relationship laws include limited renewal protections for franchisees. For example, California and some other states’ laws require the franchisor to give notice if it intends not to renew.
Speak With Attorney Jeffrey M. Goldstein About Your Franchise Renewal
If your franchise agreement is about to expire and you are concerned about your post-franchise termination obligations or are planning to renew, we encourage you to contact us for a free consultation. To speak with national franchise attorney Jeffrey M. Goldstein, call (202) 293-3947 or get in touch with us online today.
