How long does a franchise agreement last?

Franchise agreements are almost always for a fixed period. John Pratt, senior partner at Hamilton Pratt, explains: “While it is, in theory, possible for a franchise to be granted in perpetuity, it would make no sense for either a franchisor, who may be stuck with a franchisee who was underperforming, or a franchisee who may, after a period of time, want to retire.”

How long does a typical franchise agreement last?

The most common term for a UK franchise opportunity is five years. Some agreements extend to ten years or even 25 years in the case of high-cost franchises tied to the duration of the lease.

Pratt notes, “Usually when a five-year term is granted, the agreement envisages two automatic renewals, provided the franchisee has performed properly under the franchise agreement. So in effect it would last for 15 years.”

Five years is widely preferred because it balances security for the franchisee with flexibility for the franchisor. Pratt explains, “On the face of it, a franchisee wants the agreement to last for as long as possible because that guarantees him a franchise business on the terms that he has agreed.

“The downside is that circumstances change. Although a lengthy franchise agreement gives security, it can also be a straitjacket. It is for this reason that five years seems to suit both franchisors and franchisees.”

Who decides the length of a franchise agreement?

Ultimately, the franchisor determines the term, taking into account investment levels and business goals. Louise Harris, principal at Franchise Projects, explains:

“Franchise agreements should have a fixed term. That term is determined by the franchisor and will consider a number of factors.”

These include giving the franchisee enough time to:

● fully recoup the investment made and return a profit

● learn the business, grow it in the time frame and achieve the specific goals of the business

If there is significant capital investment, it is important there is time to recoup that, unless it remains a saleable asset.

Harris adds that “while the franchise term is usually non-negotiable, franchisees can exit before its end, subject to some penalties in most cases. This can be through selling, buy back or just closing in the event of distress.”

Can franchise agreements be shorter than five years?

While shorter agreements exist, they are uncommon. Pratt explains, “It is extremely unlikely that a period of less than five years would be a sufficiently long time for the arrangement to be a genuine franchise.”

Are franchise agreements usually renewable?

Yes, renewals are a key feature of most franchise agreements.

Shelley Nadler, legal director at Bird & Bird, explains that renewal conditions typically include “the franchisee having performed their obligations under the agreement, refurbishment and re-equipping of the franchise business, and the franchisee having entered into a new agreement in the form of the franchisor’s then current agreement.”

Conclusion

In summary, UK franchise agreements are almost always granted for a fixed period, typically five years, with rights to renew.

Longer terms exist for high-investment franchises. Shorter terms are rare due to the need for franchisees to recover their initial investment.