Franchise agreements can be quite tricky, which is why it’s important to have an experienced lawyer in your corner to help you understand the terms.
One of the most important things to consider is the franchise contract renewal. Most people take this for granted and that can impact them in the future.
A franchise requires a lot of hard work because you need to build a customer base, establish a reputation, and connect with the target audience to be successful. This can take years and the value of a franchise grows as over time. If there is no clear renewal plan, the franchise owner can refuse to renew your contract and lease it to another candidate for better profits. Here are some tips that can help ensure franchise renewal:
Most franchise contracts have fixed terms. You have the right to use the franchise property for that particular term; but after it is over, the owner can choose whether or not they want to have it extended for longer. Many contracts provide no right to renewal but some offer a fixed initial term along with one or more options to renew the contract. It’s a good idea to pay attention to these details during negotiations so you can plan for renewal accordingly. Bear in mind that even if the franchise owner offers options for renewal, it’s not guaranteed in any way so the franchise can slip through your hands.
Even if you don’t think you want to renew a franchise, it’s a good idea to keep that option open. When you sign the initial contract, make sure there are one or more options to renew included in it. Some franchise owners might be reluctant to do this, but it’s important to stick to your guns to get that option in. If the venture proves to be successful and you want to keep the franchise for a few more years, you can take the options included in the contract and have more leverage in the negotiations.
Take careful note of the renegotiation date to ensure you don’t miss it. Some franchisees miss the negotiation deadline and lose power over the situation. That gives franchise owners room to negotiate with other people and find a better offer for the establishment.
It’s a good idea to start negotiations early instead of waiting until the deadline for renewing your franchise. If you start negotiations early, you have leverage and more time to convince the franchise owner to renew the contract. It also means the franchise owner has less time to find or negotiate with other possible candidates, which reduces the chances of them renewing the contract. Be sure to include one or more options to renew in the next contract as well, even if you intend to retire. Keeping the options open is the best way to handle this problem.
Franchise owners like to work with franchisees that are willing to communicate, easy to work with, and reliable. If you stick with the terms of the initial contract, maintain a good relationship with the franchisor, and do your best to make your business successful, the franchisor will be more willing to renew.
If you want to know more about renewing a franchise business or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.
Thanks for reading,
The Franchise Institute Team
1300 855 435