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Are there costs involved when renewing a franchise agreement after the initial one has lapsed?
Louise Harris writes:
In respect of renewal fees, every franchise is different. Prospective franchisees are guided to ask the question specifically of the franchisor and details should be provided in the franchise agreement.
It should be kept in mind that most franchisors aim to keep the franchisees who are performing well and not in breach of their contract. The sort of costs a franchisee might expect include:
• A specified cost at renewal that will cover any franchisor costs for renewal of the agreement.
• A specified fee that covers a second or further franchise term.
In most cases, a franchisee will be expected to bring their existing operation in line with the new franchise agreement, which may involve upgrade costs in respect of premises, vehicles, equipment and/or stock, among other things.
A franchisor is entitled to charge fees as it sees fit, provided they’re identified in the franchise agreement or the schedule attached to it. Franchisees should be made aware before signing any agreement.
A prospective franchisee should engage with their franchise lawyer to advise them on any hidden fees and the implications of clauses in the franchise agreement that may mean a substantial outlay for renewing.
Louise Harris is an experienced franchisor, having built and sold an award-winning franchise. She’s currently franchise operations manager at Mathnasium UK.
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