If your franchise agreement is set to expire in 2020, you need to make an important decision: Is it time to let your franchise rights expire; or, do you want to renew?
Dealing with the expiration of your franchise agreement involves a variety of different considerations, and there are several important facts you need to know. Here is an overview of some of the key factors you will need to keep in mind:
6 Considerations for Dealing with Franchise Expiration and Renewal
1. You Need to Provide Advance Notice if You Intend to Renew
If you want to keep your franchise for another term, you will need to provide your franchisor with advance notice of your intent to renew. The amount of notice you need to provide will be determined by the specific terms of your franchise agreement.
2. You Will Also Need to Satisfy the Conditions for Renewal
As a franchisee, your “right” to renew is not guaranteed. Your ability to secure a renewal term is subject to various conditions (which, again, are spelled out in your franchise agreement), and you will need to satisfy all of these conditions in order to keep your franchise beyond 2020.
3. You Might Need to Deal with Your Lease as Well
If you have a lease for a retail or commercial location, then you will also need to see what your lease says about term and renewal. Does your lease expire concurrently with your franchise agreement? If so, what are the conditions for renewing the lease? If not, and if you don’t intend to renew (or are unable to secure a renewal), what continuing obligations will you have to your lessor, and what options do you have for exiting the lease early?
4. Will You Be Subject to Competitive Restrictions if You Don’t Renew?
Most franchise agreements contain post-term competitive restrictions – including non-competition and non-solicitation covenants. If you let your franchise agreement expire (or if you are forced out as a result of your franchisor’s refusal to renew), what will these restrictions mean for your ability to buy a new franchise, start an independent business or find employment?
5. Will You Be Forced to Make Costly “Upgrades” if You Renew?
As a condition of renewal, most franchisors require existing franchisees to come into compliance with their current system standards. Additionally, if you renew for another two, three or five years, you may find that you are forced to adopt costly technological “upgrades” at your franchise’s expense.
6. Market Factors May Have Changed the Long-Term Outlook of Your Franchise
Finally, when deciding whether renewing your franchise agreement is the right decision, it is important to assess the current market conditions. Is the demand for your franchise’s products or services the same as it was when you bought your franchise? Has demand gone up or down? How are consumer preferences expected to change over your renewal term? In order to make an informed decision, these are all questions you need to answer.
Discuss Your Options with National Franchise Attorney Jeffrey M. Goldstein
If you will need to make a decision about keeping your franchise in 2020, we encourage you to contact us to discuss your options in detail. To request an appointment with national franchise attorney Jeffrey M. Goldstein, please call 202-293-3947 or inquire online today.