Extending or ending a franchise agreement

Franchise agreements usually operate for a limited time.

When can a franchise agreement end

A franchise agreement doesn’t always have to be renewed or extended when it ends – this will depend on what’s in the agreement.

A franchisor or a franchisee can end an agreement early. This can happen:

Thinking about what happens when an agreement ends

Franchisees need to think ahead about what happens when the franchise agreement ends.

Franchisors do not have to renew or extend the term of the franchise agreement, unless the agreement says so. Franchisors can often end a franchise agreement even without the franchisee’s consent.

Franchisees can lose a lot of money if the franchise agreement ends before they expect it to. They might be left owing money on loans they’ve taken out or having to pay rent on a lease. Franchisees may have to pay money to suppliers even though they can no longer operate the business.

Key information to know when an agreement ends

Franchisees can find out critical information about what happens at the end of their agreement in their disclosure document, key facts sheet and franchise agreement.

Information that franchisees should look for are:

  • The date the franchise agreement ends or the franchise term
  • If the franchisor can terminate the agreement early, such as before the franchise term
  • If the franchisee can terminate the agreement early
  • Whether the franchisor allows the franchisee to sell their franchise, and under what conditions
  • What the franchisee’s rights are when the franchise agreement ends:
    • Do franchisees have the right to renew or extend at the end of the term?
    • Will franchisees have any rights to goodwill at the end of the term?
    • Can franchisees operate or be employed in a similar business to the franchised business in the future, or are there ‘restraint of trade’ terms in the agreement?

More information

Extending or renewing a franchise agreement

Franchisees aren’t automatically entitled to a further term after the initial term of their franchise agreement has ended.

Terminating a franchise agreement

A franchisor or franchisee can try to end an agreement early, or before the term expires.

When a franchisor becomes insolvent

During the term of a franchise agreement, a franchisor may become insolvent and no longer able to pay their debts when they are due.

Selling or transferring a franchise agreement

Sometimes a franchisee may want to sell their business before the term of their agreement is up.