June 14, 2024
How do you Renew a Franchise Agreement?

How do you Renew a Franchise Agreement?

A franchise agreement is a legally binding contract between a franchisor and a franchisee that outlines the terms and conditions under which the franchisee is granted the right to operate a business using the franchisor’s brand, systems, and support. One critical aspect of a franchise agreement is its term, or duration, and the provisions related to its renewal. Understanding when and how a franchise agreement needs to be renewed is crucial for both franchisors and franchisees to ensure a smooth continuation of the business relationship. This essay provides a comprehensive overview of the factors influencing franchise agreement renewals, the renewal process, and best practices for handling renewals effectively.


Duration of a Franchise Agreement

The duration of a franchise agreement can vary significantly depending on the specific terms negotiated between the franchisor and the franchisee, as well as the norms within the industry. Typically, franchise agreements are set for an initial term ranging from five to twenty years. The length of the term is influenced by several factors:


  1. Industry Standards: Certain industries have established norms for franchise agreement durations. For example, fast-food franchises often have terms of 10-20 years, while service-based franchises might have shorter terms.
  2. Investment Recovery: The term is often aligned with the time it takes for the franchisee to recover their investment and start making a profit. Longer terms may be necessary for businesses with higher initial investments.
  3. Franchisor’s Strategy: Some franchisors prefer shorter terms to maintain flexibility in their franchise network, while others opt for longer terms to ensure stability and long-term commitment from franchisees.


Renewal Provisions in Franchise Agreements

Renewal provisions are a critical component of franchise agreements. These provisions outline the conditions under which a franchise agreement can be renewed at the end of its initial term. Key elements typically included in renewal provisions are:


  1. Notice Period: Franchise agreements often specify a notice period, requiring the franchisee to inform the franchisor of their intention to renew the agreement within a certain timeframe before the expiration of the current term. This period can range from six months to a year.
  2. Renewal Criteria: The franchisor may set specific criteria that the franchisee must meet to be eligible for renewal. These criteria can include compliance with operational standards, financial performance, and adherence to brand guidelines.
  3. Renewal Fees: There may be fees associated with renewing the franchise agreement. These fees can cover administrative costs, training, or updating the franchisee on new systems and procedures.
  4. Updated Terms: Renewal often involves entering into a new franchise agreement that may contain updated terms and conditions. This ensures that the franchise continues to operate in line with the franchisor’s current standards and business practices.
  5. Limitations on Renewals: Some franchise agreements limit the number of times an agreement can be renewed or set a maximum cumulative duration for the franchise relationship.


The Franchise Renewal Process

The process of renewing a franchise agreement involves several steps, each requiring careful attention from both the franchisor and the franchisee. The general process includes the following stages:


  1. Review of Performance: Before renewal, the franchisor typically reviews the franchisee’s performance to ensure they have met the criteria outlined in the initial agreement. This review may cover financial performance, compliance with operational standards, and customer satisfaction.
  2. Renewal Application: The franchisee submits a formal application for renewal, often accompanied by a renewal fee. This application should be submitted within the notice period specified in the agreement.
  3. Negotiation of Terms: The franchisor and franchisee may negotiate the terms of the new agreement. This negotiation can include updates to fees, territory rights, support services, and other contractual elements.
  4. Signing the Renewal Agreement: Once both parties agree on the terms, they sign the renewal agreement. This agreement replaces the original contract and governs the franchise relationship for the new term.
  5. Training and Updates: The franchisor may provide updated training and resources to ensure the franchisee is aware of any new systems, products, or services introduced since the original agreement was signed.


Challenges in Franchise Agreement Renewals

How do you renew a franchise agreement?  Renewal can present several challenges for both franchisors and franchisees. These challenges must be addressed proactively to ensure a smooth renewal process and a continued positive business relationship.


  1. Performance Issues: If the franchisee has not met the performance standards outlined in the initial agreement, the franchisor may hesitate to renew the contract. Addressing performance issues early and providing support to the franchisee can mitigate this challenge.
  2. Changes in Market Conditions: Market conditions may have changed significantly since the original agreement was signed. Both parties need to consider how these changes impact the viability and profitability of the franchise and adjust the renewal terms accordingly.
  3. Updated Franchise Terms: Franchisors often update their franchise agreements to reflect new business strategies, compliance requirements, or operational changes. Franchisees may resist these changes, leading to negotiations that can delay the renewal process.
  4. Legal and Regulatory Changes: Changes in laws and regulations governing franchising can affect the renewal process. Both franchisors and franchisees need to ensure that the renewed agreement complies with current legal requirements.
  5. Communication Breakdown: Effective communication is essential for a smooth renewal process. Misunderstandings or lack of communication between the franchisor and franchisee can lead to delays or conflicts.


Best Practices for Franchise Agreement Renewals

To navigate the renewal process effectively, franchisors and franchisees should follow best practices that promote transparency, fairness, and strategic planning.


  1. Early Planning and Communication: Initiating renewal discussions well before the end of the current term allows ample time to address any issues and negotiate new terms. Both parties should communicate openly and frequently throughout the renewal process.
  2. Clear Performance Metrics: Establishing clear, measurable performance metrics in the original agreement helps both parties assess whether the franchisee has met the criteria for renewal. Regular performance reviews can provide ongoing feedback and support.
  3. Legal Consultation: Both franchisors and franchisees should seek legal advice to understand their rights and obligations during the renewal process. This ensures that the new agreement complies with current laws and protects both parties’ interests.
  4. Flexibility and Negotiation: Both parties should approach the renewal process with a willingness to negotiate and adapt to changing circumstances. Flexibility can help address concerns and find mutually beneficial solutions.
  5. Documentation and Record Keeping: Maintaining thorough documentation of the franchisee’s performance, communications, and any agreements reached during negotiations is crucial. This documentation can provide a clear record in case of disputes.
  6. Training and Support: Providing ongoing training and support to franchisees can help address performance issues and ensure they are well-prepared for the renewal process. Updated training programs can also introduce new operational standards and innovations.


Renewing a franchise agreement is a critical juncture in the franchisor-franchisee relationship. It involves assessing past performance, negotiating updated terms, and ensuring compliance with legal and regulatory requirements. By understanding the factors that influence renewals, following a structured renewal process, and adhering to best practices, both franchisors and franchisees can navigate this process successfully. Proactive planning, clear communication, and a willingness to adapt to changing conditions are essential for a smooth and beneficial renewal process that supports the continued growth and success of the franchise.


To learn more about franchise agreements, or how to Franchise, contact Chris Conner with FMS:  [email protected] or visit the FMS Franchise site:  www.FMSFranchise.com 


To learn more about franchising in general, visit the FMS Franchise Podcast:  https://franchiseradio.net/podcast-series/franchise-marketing-systems-podcast/


  • International Franchise Association. (2023). Franchise Agreement Renewal Process. Retrieved from IFA
  • Entrepreneur. (2023). Understanding Franchise Agreements and Renewals. Retrieved from Entrepreneur
  • American Bar Association. (2023). Legal Considerations in Franchise Agreement Renewals. Retrieved from ABA
  • Franchise Direct. (2023). The Importance of Franchise Agreement Renewals. Retrieved from Franchise Direct
  • Franchising.com. (2023). Best Practices for Renewing a Franchise Agreement. Retrieved from Franchising.com
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