Renewal conditions and process should be covered within the franchise agreement. Most franchisors require their franchisees to serve a notice confirming that they wish to renew. This is standard practice because, of course, if a franchisee does not want to renew then a different process will need to be put into place to deal with the wind down and closure of the business (unless the franchisee opts to sell instead!).
Renewal is usually conditional upon (a) franchisee’s compliance with the franchise agreement, the manual and generally the system, (b) franchisee being up to date with any fees due to the franchisor, (c) franchisee’s performance being in line with expectations or business plan. If the business is premises or vehicle based there would usually also be a condition requiring for the premises to be refurbished and updated or vehicles being updated or being in a certain condition. It is also common to see a requirement to attend additional training and the franchisor would typically expect payment of a fee to cover its costs of dealing with renewal.
Upon renewal, the franchisor would typically issue to the franchisee a new franchise agreement which may or may not be the same as what the franchisee had signed previously. It is therefore always advisable to obtain legal advice on the renewal franchise agreement just to make sure that you do know what to expect.
A renewal is an opportunity to pause, reflect and make a plan. It is an opportunity to consider and review an exit plan, to check in against your plan and adjust if necessary. Is your exit plan to sell in 5 years or 10 years? What price do you want to achieve and what do you need to have in place to achieve it? What support do you need from the franchisor?
For a franchisor, a renewal is a chance to check in with the franchisee – to celebrate their achievements, to review support structure, to influence the future trajectory. If the franchisee is a great performer, renewal is the time to discuss future plans. Could this franchisee be your next multi-unit franchisee? If the franchise has plateaued, what are the causes and what can you do to help your franchisee get to the next level or is this indeed the right time to start having a conversation about exit and how you can help your franchisee achieve this in the right way.
