What is the term of the franchise agreement?

One of the most important considerations that you need to contemplate when buying a franchise or signing a franchise agreement is the term of the franchise agreement:

  • your franchise agreement will set out how long it runs for;
  • you may be able to extend or renew the term or length of your franchise agreement.

Renewal

  • if your agreement includes an option to renew or extend, it will usually set out the time frames when you should discuss your intentions with the franchisor. You should make sure you clearly understand any time frames for renewal set out in your franchise agreement and diarise any important dates.
  • if you do not comply exactly with the terms for renewal set out in your franchise agreement, you may not be able to extend or renew your franchise agreement.
  • options to renew your franchise agreement are usually tied into your behaviour. If you have breached your agreement or you owe money to the Franchisor, the Franchisor may not renew your franchise agreement.
  • there may be a renewal fee payable on the renewal of your franchise agreement. If there is a renewal fee payable you should include this figure in your budget forecasts.

Lease Provisions

  • if your franchise business is conducted from premises which require a lease, the length of your franchise agreement may be affected by the length of the lease.
  • if you are the lessee, your franchise agreement should contain provisions about what is to happen if your lease is terminated or expires before the expiration of the franchise agreement. You should check these provisions carefully.
  • you should be aware that if you are left with a franchise agreement and no lease, clause 29a of the Franchising Code of Conduct provides grounds for the franchisor to terminate your franchise agreement immediately.
  • your franchise agreement may contain provisions about what happens if your franchise agreement is terminated before your lease ends or expires. You should check these provisions carefully as there is the possibility that you may be left without a franchise agreement but still be bound to your lease.
  • where possible you should aim for the terms of the franchise agreement to coincide with the terms of the lease.

Contact us to get us to review any franchise agreement or lease or licence agreement.

Further Information

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