What Happens at the End of a Franchise Agreement
When you are thinking about becoming a franchise owner there is a lot of information to consider. This is an exciting new endeavour for yourself and your potential business partners and you will be investing a lot of money, time, and effort into making your business a success. But when you are starting up your own business as a franchisee, you are focused on proper licenses, marketing, and your obligations to the franchisors. During this time, you may not necessarily think of the end (at the very beginning!). While this is understandable, it is important to be aware of franchise agreements and the renewal process so that you maintain what you have worked so hard to build.
So you might be asking yourself: what happens at the end of a franchise agreement? It’s important to note that franchise agreements typically last for 5-10 years and these are fixed-term agreements. This can be overwhelming because no one knows what will happen so far down the road, but time flies. Once the franchise agreement expires, you will not be able to operate your business using the franchisors products, services, or branding with the exception of you extending your agreement, or signing an additional agreement.
What happens when the agreement expires?
Ultimately, this depends on how your business is performing and what your relationship is like with the franchisor. If your business is profitable and you are following the franchise system then the franchisor will want to renew. However, if your business is not doing too well, you have two options: sell the franchise or close.
Am I able to renew?
Before you sign a Franchise contract, check to see if the contract includes a renewal clause. While this is ideal, it does not mean you will be able to renew the agreement for certain. Franchisees on their own do not have the right to renew their franchise agreements. This fully depends on what the franchisee has agreed to with the franchisor.
How do I renew?
According to best practices, the franchisor should get in touch with the franchisee at least six months before the expiration date of your agreement. This is so they can communicate with you whether they’d like to renew their agreement. Follow the following steps to help you renew your agreement:
As previously mentioned, read your franchise agreement carefully to find out if there is a renewal clause or whether you are able to sell the franchise before the end of terms.
Inform the franchisor that you would like to renew 6 to 9 months before the agreement expires
Pay the agreed-upon renewal fee. You will find the set amount in your agreement.
Ensure you are not breaching any of the terms of your agreement. This will make it harder for you to renew.
Final thoughts
Planning now can prevent that agreement deadline from creeping up on you down the road. It is important that you start thinking about the future now even though it seems like renewal is some time away. However, if you would like some assistance or support with this process we would be happy to help. Feel free to book a free consultation with us so that we can help you put things in order for your business.
