Franchise agreements usually operate for a limited time.
- Franchisees need to think ahead about what happens when the franchise agreement ends.
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:
- if the franchisee wants to end the agreement early. For example, franchise agreements usually allow franchisees to sell their franchise
- even if the franchisee doesn’t want to end the agreement early, for example because the franchisor goes bust or because the franchisor terminates the agreement.
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.
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?