As you plan your goals and priorities for 2025, one crucial item should top your list: renewal dates. Franchisees do not have an unlimited right to operate their franchise businesses, which is why they must understand and act on renewal dates.
Let’s dive into what franchisees need to know about renewing their franchise agreements to help make 2025 a success, and other happenings that might require a mark on your calendars.
Review Your Calendar
Franchise agreements often have terms of five or 10 years, depending on the industry. If you signed your agreement in 2015 or 2020, it’s time to identify the renewal date. Unlike online bill payments, these agreements do not renew automatically—the franchisee typically initiates the process.
Your franchise agreement should outline the steps for renewal, including the need to notify your franchisor within a specific time frame. This notice period is often between six and 12 months before the agreement’s expiration date. Missing this window can result in losing the right to renew. So, identify the deadline, mark it on your digital calendar and set reminders.
Intent to Renew
Ahead of the renewal date, reflect on your franchise’s performance. Ask yourself: What went well? and What could use improvement?
This evaluation will help you decide whether to remain in the franchise system or consider other options.
If your business is thriving and you want to continue operating under the brand, it’s time to get your ducks in a row. Start by consulting your franchise attorney. A New York franchise lawyer, for instance, can guide you through the renewal process and help you understand what to expect.
Don’t Mistake a Renewal for an Extension
One common misconception is that renewing a franchise agreement means extending the existing terms. In fact, renewals typically involve negotiating a new agreement. This updated contract may include changes such as:
- Increased royalties,
- New fees, or
- Modified territory protections.
Franchisors typically revise their agreements over time, and the updated version could impose stricter requirements or operational adjustments. A careful comparison between your current agreement and the proposed renewal agreement is essential. This step ensures you fully understand the implications of renewing and prepares you to negotiate terms if needed.
Contrary to what some franchisors may claim, neither federal nor state franchise laws prohibit negotiation. While the extent to which a franchisor is willing to negotiate varies, it’s worth exploring your options with the help of your NY franchise lawyer.
Should You Sell?
Renewal isn’t your only option. You might consider selling your franchise, whether it’s to the franchisor, another franchisee, or a new investor. If this is what you choose, have your attorney review your agreement to understand the transfer process and avoid losing the right to sell by letting your agreement expire.
Letting the agreement expire without renewal is another option, but it comes with significant consequences. You’ll likely be required to cease operations, including removing all branding, signage, and franchise-specific materials. Additionally, many agreements include non-compete clauses that restrict your ability to operate a similar business for a certain period.
Post-Expiration Obligations
If you decide not to renew, carefully follow your agreement’s post-expiration requirements. These may include immediately stopping the use of all franchisor trademarks and de-branding your business. This can extend to items like business cards, social media accounts, and even phone numbers associated with the franchise. Some franchisors may send representatives to inspect your compliance with these requirements.
Furthermore, your original agreement might contain stipulations preventing you from operating a competing business. It’s crucial to identify these details in advance with your attorney’s help to avoid potential legal issues in 2025 and beyond.
Commercial Lease Renewals
Keep your print or digital calendar available, because now is also an ideal time to check if 2025 is the year to renew the lease for your commercial space.
If a tenant has a right to renew the lease, which may have an initial term of five or 10 years, the lease will often renew on the same terms, but for an increased rent amount. While this differs from renewal of a franchise, which includes a new franchise agreement, similar to franchise agreements, leases require tenants to provide notice to the landlord prior to the expiration of the lease. Notice periods tend to range from 90 days to 12 months.
As previously discussed, knowledgeable franchise counsel can help synchronize your commercial lease with your lease agreement. This exemplifies why a NY franchise lawyer with commercial leasing experience should be consulted during any renewal, since they will know what lease provisions to review, negotiate and/or add to ensure that the lease meets the requirements of the landlord and the franchisor.
Corporate Transparency Reporting in 2025
On another note, there have been several developments regarding the federal Corporate Transparency Act (CTA), which was enacted on Jan. 1, 2024, and applies to many U.S. companies, including franchises.
The CTA requires reporting companies to file beneficial ownership information (BOI) with the Financial Crimes Enforcement Network (FinCEN).
But in late December 2024, two different federal courts weighed in on the CTA:
- On Dec. 23, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit, reversed the pause on enforceability,
- On Dec. 26, the full Fifth Circuit Court vacated the aforementioned order and reinstated the stay while the merits of the case are under expedited appellate review.
Thus, for now, it seems that small businesses are not required to comply with the BOI reporting requirements. However, reporting companies should check the Department of the Treasury’s site and FinCEN.gov speak with their NY franchise lawyer to stay updated and on developments that could modify or change the most recent court order.
Regardless of the fate of the federal CTA, New York’s LLC Transparency Act is still active and requires LLCs to disclose ownership information to a state-level database.
How Lusthaus Law Can Help
Never assume that the franchise renewal agreement will be a copy of the previous one, with a new date at the signature line. Working with knowledgeable franchise counsel during the renewal process can help protect your rights and interests during the next term of franchise operations. 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.
