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What does a renewal fee cover?
Franchisees who have fulfilled their contractual obligations can expect to be granted a new term on expiry of the original term of the franchise agreement. However, those who have not met their targets, or are unsuitable to continue the business further, may not be offered the option to extend. In some cases such renewal will require the payment of a fee. The renewal fee can be as little or as much as the franchisor decides. In some cases, it covers only the administration costs of the franchisor in dealing with the renewal. In other cases, there may be a premium element to encourage the franchisee to think carefully before the renewal. The renewal fee differs to the initial fee since the franchisee does not usually get anything for it, other than the option to renew the franchise agreement. However, some franchisors may use the renewal fee to pay for upgrades to the physical location of the franchise business. Renewal fees are an important consideration for both franchisors and franchisees and the terms upon which renewal fees are paid and what they cover should be set out in the franchise agreement.
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