You should check your franchise agreements for the requirements of renewing the term. Typically, you will need to:
- Give written notice to your franchisor within a specific timeframe (for example, between 9 and 12 months before the end of the term). If you do not exercise your option to renew within the specified timeframe, you could lose your right to renew. The timeframe should be outlined in your franchise agreement.
- Be in compliance with the terms of the franchise agreement.
- Sign the franchisor’s current version of the franchise agreement, which may contain terms different to the terms of your current franchise agreement. You should consider getting further legal/accounting/business advice if this is the case to determine whether you have grounds to challenge some terms in the new agreement. We usually recommend contacting at minimum a franchise lawyer.
The Code of Conduct
The Franchising Code of Conduct requires the franchisor to notify you of their decision whether or not to renew your franchise agreement at least 6 months before the end of the term (for franchise agreements signed after 1 July 2010). This can serve as a reminder to you to notify the franchisor of your wish to renew the agreement.
In addition, it is often the case that a lease renewal will take place at the same time as the franchise renewal. In such cases, the franchisor can often take charge of the lease negotiations without keeping the franchisee informed of progress on lease renewal.
This is often a source of confusion and conflict between franchisor and franchisee, which could be avoided if both parties were proactive in communicating with each other and jointly negotiating the terms of renewal with the landlord.
Upgrade or refurbish?
The franchise agreement may also require you to upgrade or refurbish your store, and pay a renewal fee. It is important to understand the precise terms of the renewal provisions in your franchise agreement so that you can negotiate appropriate terms with the franchisor.
It is advisable to seek legal advice well before the renewal date to ensure you are fully involved in the lease negotiations and also to ensure you renew your franchise in accordance with procedures specified in your agreement.