For how many terms will I be able to run a franchise?
Shelley Nadler writes:
Franchise agreements in the UK are often for a fixed term of five years, with rights to renew at the end of the term for either one or two further five-year periods. The term of the agreement and any rights to extend or renew the term will be set out in the franchise agreement.
A franchisee will want to be able to operate their business long enough for them to amortise their initial franchise investment and for the term of the agreement to be long enough for them to realise the value of their business on transfer.
Some franchisors grant lengthy terms - 20 years, for example - with no rights of renewal. In such cases, the franchisor may well offer a new franchise agreement at the end of the 20-year term, but is under no obligation to do so.
The franchise relationship should be capable of subsisting on a long-term basis as long as both parties observe their respective obligations. There may be various reasons - including legal reasons, where the agreement includes the tied supply of products - for a relatively short initial period, but most franchise agreements allow for the franchisee to be able to exercise a right of renewal.
There are usually conditions attached to renewal, such as the franchisee having performed their obligations under the agreement, refurbishment and re-equipping of the business and the franchisee having entered into a new agreement in the form of the franchisor’s then current agreement.
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