Renewal of franchise agreements
Many franchise agreements last for a period of 5 years. There are also franchise agreements that last for a period of 10 years where the franchisor embraces a head lease of the area and grants a sub-lease to the franchisee. The Franchise Agreement always include rights to renew the franchise for a number of further five year periods and the basis upon which the renewals are decided are clearly set out.
Both franchisor and franchisee can continue to renew the agreement as many times they want because it is the franchisor’s interest to retain good franchisees within its network. The franchisor profit is not made from the fees paid on the grant of the Franchise Agreements but is made from its organisational services fees, charged as a percentage of the franchisee's revenue.
It is important for franchises to note carefully any changes to the agreement that may have been made since the original franchise agreement. This is particularly important where the franchisee is looking at retirement and considering a buyer for his or her franchise business.
It is both the parties’ interests to complete the renewal procedure accurately and with complete understanding of the agreement.