Dealing with renewal issues can be a difficult and stressful part of a franchisee. However, these issues become even more difficult and stressful if they are not addressed proactively. For example, instead of waiting for the original term of the franchise agreement to expire before negotiating the terms of the renewal, we recommend negotiating some of these terms when the franchisee signs their first franchise agreement (i.e., instead of agreeing to sign the then-current form of the franchise agreement, try negotiating the right to keep certain terms the same when renewing). Instead of waiting until the franchisee has not been renewed and has ceased operations to challenge the franchisor`s decision not to renew, we recommend that a franchisee take action immediately after receiving a notice of non-renewal or notice and see what, if any, can be done to change the franchisor`s mind. Signing the then-current form of the franchise agreement – franchisees often believe that the terms under which they currently operate (including the royalty rate and the extent of any territorial protection that may be obtained) are set forever. Unfortunately, this is usually not the case, and for franchisees to renew their franchises, franchisors often require that they agree to sign the “then-current form of franchise agreement,” which may include significant differences from a franchisee`s previous franchise agreement, including higher royalties, marketing, and other fees. In order to prevent the franchisor from changing the essential terms of the franchise agreement upon renewal, we always try to negotiate changes to the franchise agreement to ensure that certain provisions remain the same in all future forms of the franchise agreement. B for example the same royalties, marketing and other costs, the same protected territory and any other important bargaining point that the franchisee originally receives. Could. The federal government provides in one of the proposed forms of the key fact sheet that a franchisee should review and consider what the requirements are for the renewal or renewal of the franchise agreement. For example, if the franchisee is asked to spend a lot of money to renovate the site in order to get another term. If the franchisor does not agree to renew the existing contract or enter into a new contract and does not offer the franchisee “real compensation” for its goodwill at the end of the contract, the franchisor cannot assert its non-compete obligations against the franchisee at the end of the contract.
Additional renewal rights – Although most (but not all) franchise agreements grant the franchisee the right to renew, the number of renewals to which a franchisee is entitled varies considerably from one franchise agreement to another. For example, some franchise agreements only grant the franchisee an extension period. After this extension period, the franchisor (unless otherwise protected by law) cannot be obliged to offer the franchisee other renewal rights. Therefore, we always want to make sure that our customers have the right to have multiple renewal conditions (e.g. B four renewal conditions) or, if possible, the right to receive an unlimited number of consecutive renewal conditions of a certain duration. So, can a franchisor refuse to renew or extend a franchise agreement if the franchisee has exercised his option? As a general rule, a franchise agreement does not last forever. The duration of the agreement is often explicitly stated in the contract, usually between 10 and 20 years. Ultimately, proactively addressing renewal issues almost always leads to better results for franchisees than doing nothing. If you have a problem or question about renewal, please feel free to call one of Dady & Gardner`s lawyers or contact us via our website. A franchisor that fails to provide a copy of the Code and disclosure documents to an existing franchisee at least 14 days prior to the renewal, renewal or payment of a non-refundable payment will be subject to a civil penalty of 700 penalties (i.e., a fine of $54,000). Franchisees should remember that franchisors are not required to renew a franchise agreement that does not include a renewal right or renewal option on verifiable terms; even the courts do not create a right of renewal if there is none. For a franchisee, renewing or extending their existing contract allows them to continue to operate the business, maintain their goodwill and, in a timely manner, give them the opportunity to sell their business and/or hopefully assign their rights for a reasonable return.
There are already a lot of things you need to think about when you start your franchise. However, it`s important to pay attention to the renewal of your franchise agreement when you first sign the contract – even if it`s 20 years away. Negotiating the terms of the renewal process can save you a lot of grief in the long run. It can also prevent your franchisor from using your hard-earned success too much by demanding an exorbitant share of your profits. Below are some of the main issues that arise in relation to renewal in the vast majority of franchise agreements we see on a daily basis, as well as some tips on how to proactively address issues before signing your next franchise agreement. If the agreement does not materialize, the franchisee does not have the right to renew the contract. You can always request an extension, but the franchisor is not obliged to accept it. If you do not renew your franchise agreement and the franchise agreement expires, you may not be compensated for the goodwill you have accumulated in the franchise industry. You may need to sell your franchise business before the term of the franchise agreement expires (based on the franchisor is willing to grant a new franchise to the buyer) in order to be compensated for goodwill.
Make sure you are aware of all fees due and due to the franchisor when you exercise your option or are in talks to extend the term of your deductible. The franchisor may have the right to refuse an extension or extension if the franchisee is in arrears with its obligations at that time, or the agreement may impose conditions on the franchisee for the renovation as a condition of renewal. An extension of the duration of a franchise agreement is therefore a change of franchisor, but not an extension. “Renewal” occurs when the franchisee exercises an option to renew the contract. The renewal phase of a franchise agreement can be a tense period. Franchisees who have had problems may rightly fear that they will not be allowed to renew. For those who have succeeded, there is a fear that their franchisor will make unreasonable demands in exchange for an extension. The Code requires both parties to act in good faith, and this also applies to negotiations included in the agreement, conduct during the term, and negotiations on renewal and withdrawal agreements.
For a franchisor, the renewal and/or renewal of its franchise agreements ensures its continued source of revenue through royalties and margins for the delivery of products and preserves the value of its franchise system as a whole. The renewal or renewal of a franchise agreement is an important right and has a strong impact on the franchisor and franchisee in different ways. If you wish to operate another business (including from the premises), you must read the terms of the non-competition or restriction clauses of the franchise agreement. The terms of the “then-in-force” agreement could also force the franchisee to redevelop its facilities or radically change the way it operates its franchise in the future. Second, the franchisor may return a written response indicating that it does not intend to renew the franchisee. If this happens, I hope that the franchisor will have explained the reasons for the non-renewal in the letter. If this is not the case, in most cases it would be prudent to ask the franchisor to explain the reasons for the non-renewal. Once the reasons for the non-renewal are identified, we usually ask our clients if the factual claims in the letter are correct. If the franchisor is wrong, clarifying these misconceptions can often lead to a reversal of the franchisor`s position and a renewal for the franchisee. Another important thing to keep in mind is that the reasons for non-renewal announced by the franchisor may not be the franchisor`s actual reasons for not renewing.