Answer:
If your franchise business is booming, you will want to ensure that you can renew your franchise agreement to continue building your business.
However a franchise agreement usually does not renew automatically, nor do you always have a right to renew the agreement.
Below, we talk about how you can determine whether you have a right to renew your franchise agreement.
Does the Franchising Code Give Me a Right to Renew?
The Franchising Code of Conduct does not give you an automatic right to:
- renew your franchise agreement;
- extend the agreement; or
- enter into a new agreement after the initial term has ended.
Whether or not you do have these rights depends on your particular franchise agreement.
However, the Code does give you the right to:
- know what rights you will have at the end of the initial term via the franchisor’s disclosure documents; and
- receive notification from the franchisor about whether they will extend your agreement, at least six months before the end of your term.
Does My Franchise Agreement Give Me a Right to Renew?
Your franchise agreement usually gives you the right to use the franchisor’s brand and operating systems to run your business. This right is granted for a fixed number of years or months, rather than indefinitely. So you cannot assume that you have an automatic right to continue running the franchised business after your initial franchise term has expired. You will have to check the franchise agreement to see if you have an option to renew.
Usually, an option to renew clause is common in franchise agreements. You will generally have discussed the inclusion of such a clause when first entering into the contract with the franchisor. However, in order to exercise that option to renew, the franchisee usually has to meet certain requirements during the first term. These include:
- paying franchise fees on time; and
- complying with the terms of the Operations Manual.
Exercising an Option to Renew
If you do have an option to renew, you must exercise that right before the deadline stated in your franchise agreement. Usually, this must happen within the three to six months before the agreement’s expiry date. The agreement will also tell you how you should provide notice to the franchisor that you intend to renew.
What if My Agreement Has No Existing Right to Renew?
If you want to renew your franchise agreement but the contract currently has no option to renew, you can try contacting the franchisor and negotiate the inclusion of this clause. Start discussions as early as possible, ideally as early as a year in advance of the expiry date. This can minimise the uncertainty and lack of security created if the contract expires with no agreement reached between you and the franchisor.
