Typically, a franchise agreement does not last forever. The term of the agreement is often explicitly stated in the contract, usually for between 10 and 20 years.
For franchisees, this creates a problem: What can you do when the term of the agreement ends? Renewing a franchise agreement is not automatic. Even when a franchisee's rights include the right to renew the agreement, franchisors can put so many additional terms on the renewal that it is not worth it.
The Franchise Agreement Dictates Your Right to Renew
The most important factor in your ability to renew a franchise agreement is the agreement, itself. While there will nearly always be a section in the agreement that states the duration of the agreement, there may not be anything that lays out what happens when the duration expires.
If the agreement is indeed silent, then the franchisee does not have a right to renew the agreement. They can still apply for a renewal, but the franchisor is under no obligation to accept it.
On the other hand, if the agreement says that there is a right to renewal, that does not mean that the renewal application is a mere formality. Franchisors can, and often do, use the renewal process as a way to maximize their own profits or to get rid of franchisees that they see as troublesome, underfunded, unorganized, or merely inconvenient.
Can the Franchisor Change the Terms of the Agreement?
While renewing the franchise agreement makes it sound like all of the terms in the old agreement would simply get renewed, franchisors can require their franchisees to sign a “then-current” agreement. This often alters some very important terms in the contract, like:
- The franchise royalty rates
- Marketing fees
- Investment requirements
- Protected territory
The terms of the “then-current” agreement might also force the franchisee to remodel their facilities or drastically alter how they operate their franchise in the future.
Plan for Renewal Before You Start Your Franchise
There are already a lot of things to think about when you first start your franchise. However, it is important to look ahead to renewing your franchise agreement – even if that is 20 years in the future – when you first sign the contract. Negotiating the terms of the renewal process can save you lots of heartache in the long run. It can also keep your franchisor from taking too much advantage of your hard earned success by demanding an exorbitant share of your profits.
Massachusetts Franchise Litigation Lawyers at the Katz Law Group
The renewal stage of a franchise agreement can be a tense time. Franchisees who have been struggling may be legitimately concerned that they are not allowed to renew. For those who have been successful, the concern is that their franchisor will make unreasonable demands from them in exchange for a renewal.
The franchise litigation lawyers at the Katz Law Group can help you fight for a renewal and negotiate terms that you are unlikely to get, on your own. Contact them online or call their law office at (508) 480-8202 for legal assistance in Marlborough, Framingham, Worcester, or the rest of Massachusetts.