Home
Questions
Is there a maximum number of times a franchise agreement can be renewed?

Is there a maximum number of times a franchise agreement can be renewed?

answered by John Pratt

Senior Partner at Hamilton Pratt

Generally, franchisors don’t grant perpetual renewals. The reason most franchisors don’t is that it can be difficult for a franchisor to terminate a franchise agreement or have sufficient grounds to refuse an automatic renewal under a renewal clause in a franchise agreement, even if a franchisee is performing badly.

Renewal clauses contain conditions that have to be satisfied if a franchisee is to receive a renewal, but those conditions are sometimes subjective and, as a result, there may be uncertainty as to whether the franchisor is entitled to terminate. Where there is uncertainty, issues can end up in court.

In view of the above, franchisors prefer a situation where after a fixed number of renewals, there is no contractual right in favour of a franchisee to renew. That has the advantage of being clear cut. However, a franchisor could renew the franchise agreement, even though it’s not obliged to do so.

Generally, in a five-year term you would expect two automatic renewals, in a 10-year term one automatic renewal and, in the case of the much rarer 25-year terms, you would not expect any renewal.

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.

Want to be your own boss? Start today!