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Is a cost involved when it comes to renewing a franchise agreement?
Most franchise agreements allow franchisees to renew. The only exceptions are those agreements that have been granted for very long periods, such as McDonald’s, Burger King or KFC agreements. Normally, you would expect a franchisee to have the rights to two automatic renewals if a five-year term is granted, or one automatic renewal if a 10-year term is granted. The renewal clause in the franchise agreement sets out the conditions that must be met to enable a franchisee to serve notice on the franchisor requiring a renewal. Clearly, the franchisee must perform properly under the franchise agreement and, in addition, must enter into a new franchise agreement. It would be considered poor practice for a franchisee to be required to pay the initial fee again on entering into the renewal agreement - quite apart from anything else, most of the initial obligations that are performed by the franchisor, and for which the franchisee is reimbursed by the initial fee, do not have to be performed on a renewal. Generally, it is in the franchisor’s commercial interests for those franchisees who are performing well to continue within the franchise, and so no fees are charged other than a payment in respect of the franchisor’s legal and administrative costs.
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