After the term length stated in the Franchise Agreement, the contract expires. When it comes time to renew, as many franchisees decide, they often find themselves in a difficult position. Sometimes the franchisor wants them out of the system or they want to change the terms and conditions of their previous agreement. As a result, the franchisee may face difficulty protecting their rights in the renewal process. Many franchisors see the franchise renewal as an opportunity to convince their franchisee to accept stricter or more legally harmful terms. While hiring a franchise attorney upon renewal is a good way to guard your rights, there are several things to know before going into franchise renewal negotiation.
The Franchisee may face difficulty protecting their rights in the renewal process.
There are several conditions that come with the franchisee’s right to renew a franchise. These conditions are outlined in the Franchise Disclosure Document and should be considered before the franchise is purchased at all. Things to consider before purchasing the franchise:
The renewal period
The “then-current terms”
Obligations to cure
For one, many franchisors provide set renewal periods, which give the franchisee a renewal deadline. If the franchisee waits too long before renewing their franchise, they may miss out on the opportunity to continue with their business.
The terms that decide the renewal
“Then-current” terms is a way that the franchisor is able to alter the terms and conditions of the initial Franchise Agreement. Often, the franchisor uses this as an opportunity to raise royalty fees or limit rights and protections of the franchisee.
Updates or upgrades is another financial burden on the franchisee that often seems to come out of left field. Many franchises require their facility or outlet be upgraded each year with new systems, products, etc. Fitness franchises, for instance, frequently require that the franchisee upgrade or update all machines once every several years. This is an extra finance that the franchisee should consider.
Things to know about: obligations to cure
The franchisor may also implement obligations to cure. Should the franchisor accuse you of breaching the franchise agreement, you may be required to “cure” the breach before you renew the franchise. Depending on the accused violation, this cure period can be time consuming.
Should you decide to renew your franchise, make sure that you know the date by which you must notice the franchisor. Also take care in avoiding any activity that may be considered a breach of the franchise agreement. Review the system’s current standards and be sure that you are able to comply. Finally, understand the difficulty that comes with the renewal process. The franchisor may try to alter the terms and conditions to your detriment. Be prepared to counter this possibility.