The holiday season is often considered a time to celebrate and enjoy good company. It is also an ideal time to review your franchise agreement to determine whether your agreement will expire in the coming year. Many franchise agreements contain terms of five or 10 years. If your franchise agreement was signed in 2013 or 2018 – before abbreviations like “COVID” and phrases like “viral on TikTok” became part of the vernacular – now is the time to determine the exact date and make your renewal plans.
Our franchise lawyers in New York can help you review and solidify renewal options so that you can enjoy the upcoming holiday season without worrying about your renewal process.
Intent to Renew
As a franchisee, you should first consider whether you want to remain in the franchise system and maintain the relationship with the franchisor. Reflect on the previous term, and note what went right and what went wrong. Was your business profitable and how well did you adapt to changes in the market?
Second, it is important to note that franchise agreements generally do not renew automatically, and the onus is often on the franchisee to initiate the renewal process. Most franchise agreements contain a provision that outlines the steps required for renewal, including the requirement that the franchisee provides the franchisor with notice of its intent to renew within a certain time frame. While each agreement is different, the notice required is often not more than 12 months nor less than six months prior to expiration.
Assuming your business is successful and you want to continue operating under the brand, contact your NY franchise lawyer to begin your due diligence well in advance and prepare for the renewal process.
Expect Changes
In addition to not being automatic, “renewal” often does not mean extending your current franchise agreement for an additional period of time. Rather, you will likely have to sign the franchisor’s new form of the franchise agreement, which will likely be more onerous than your extant agreement. This could mean an increased royalty and new or other increased fees, a change in mandatory operating equipment, and/or a change in territory protections. In franchising franchisors often modify their agreements over time and when the franchisee is eligible to renew, the new agreement may contain significantly higher fees or new operating procedures.
However, neither federal nor state franchise laws prohibit franchisors from negotiating franchise agreements with franchisees, whether it is your first agreement or a renewal. When the franchisor’s representative says it is against the law to negotiate, confidently know that is not true. But whether or not your franchisor will negotiate and to what extent, depends on many factors.
Ready to Move On?
Alternatively, you may want to sell your business to the franchisor, another franchisee, or perhaps a new buyer. In such an event, it is wise to have counsel review your agreement to determine the transfer process so that you can ensure that you do not lose the right to sell by allowing your franchise agreement to expire.
Of course, allowing the franchise agreement to expire is an option in lieu of a renewal. However, in such an event, you may not be permitted to continue operating your business (albeit under a different name).
Your franchise attorney can help you review your existing agreement – well in advance of its expiration – to determine your post-expiration obligations. Typical obligations include the requirement to immediately stop using the franchisor’s trademarks and anything else that communicates your alignment with the franchise system, as well as to remove any relevant signage, branding, etc. This also includes business cards, social media, and even special franchise-aligned phone numbers. Some franchisors may send a representative to inspect your de-identification processes.
As you look to the future, also remember that your original agreement may have stipulations preventing you from owning or operating a competitive business for a period of time. This is a key detail – among several others – you and your franchise lawyer must identify during the renewal or expiration process.
We Can Help
Never assume that the renewal agreement will be a copy of the previous one, with a new date at the signature line. A thorough comparison of franchise agreements by our NY franchise lawyers will help protect your rights and interests if you choose to renew.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path toward your franchise’s successful future.
