Renewal

If you are content with the level of business you are doing at your unit of the franchise, you will probably want to renew your franchise agreement. You must, however, make sure that the franchisor wants to renew with you. The franchisor reserves the right to refuse to grant you a renewal, usually due to extenuating circumstances. For instance, if you are behind in your royalty payments or do not comply with regulations regarding some other aspect of the business, the franchisor may not want to continue doing business with you. In some cases, renewal clauses are included in the initial contract. Some franchises do not permit renewals at all, while others limit the number of times you can renew.

The franchisor will probably charge a renewal fee. It should be less than the initiation fee you paid when you bought the franchise, because this time you are starting with a solid base instead of starting at ground zero. You do not need to buy equipment, train employees, etc. because those aspects of the business are already in place. However, be aware that renewal is often a time when a franchisor will mandate a significant change or expense in the operation of the franchise which you may not have anticipated.

Be aware that the franchise system and the marketplace are subject to change. The last agreement you signed may have been written 10 or 20 years ago, and will probably need to be updated to keep up with current trends. Look out for changes in royalty and advertisement fees, territorial rights, remodeling requirements, new equipment, training requirements, renewal terms and material terms of the relationship, such as dispute resolution. These are the aspects which are probably most likely to change. Also note whether the Internet has affected your business. You or the franchisor, or both, may want to address this in the renewal agreement.

Termination

Termination is also a highly litigated area in franchising. Note what your initial agreement says about each side’s right to terminate the relationship. The franchisor is usually allowed to terminate the agreement if s/he can prove that there is just cause for doing so. This means that the franchisee must fail to uphold some part of the agreement, which would justify the franchisor’s decision to terminate. Therefore, it is of the utmost importance that you understand each provision under which the franchisor has the right to terminate the agreement. These should be clearly stated in the original contract. Also, see what the contract says about the franchisor giving you notice of your failure to complete some aspect of the agreement. Will you have time to correct the error before the franchisor moves ahead with termination of the agreement?

Transfer

It may seem odd to think about selling your franchise before you have even purchased it, but a prudent investor will do so now in order to prevent problems later. Check your contract to see what the rules relating to transfer agreements are. Some franchises do not allow transfers of any kind, while others have specific rules governing procedure.

Your franchisor may have a right of first refusal if you decide to sell. This means that if a potential buyer makes an offer, the franchisor has the right to match the buyer’s price and, in effect, buy out the business from right under the potential buyer.

Your franchisor may also have a right to reject potential buyers. This can be extremely frustrating for a franchisee looking to sell and may also result in a franchisee selling his/her franchise for much less than he or she wanted to. This is usually done in an effort to find more potential buyers, hopefully one who will be acceptable both to you and to the franchisor. New buyers do not want to come in at the very end of the line, they want to come in while your franchise is still up and running and has a long life. Therefore, contracts with years left on them and with renewal options are very valuable, as are leases which are not yet due.