What are the requirements that a franchisee must meet to renew his or her franchise? The list of criteria should be clearly identified in the franchise agreement and evaluated.
What are appropriate requirements on the renewal of a franchise? When forming a franchise, a company must decide the requirements that a franchisee must meet in order to renew the franchise. Will the franchisee be required to pay an additional franchise fee? Will this fee be a percentage of the currently charged franchise fee or a percentage of the fee he or she originally paid? Here are some typical requirements that a a franchisor may have of its franchisee on renewal:
- Length of renewal term
- criteria for renewal
- good standing
- full compliance
- timely notification of intent to renew
- execute the then current franchise agreement
- pay renewal franchise fee
- provide a general release of the franchisor
- renovate the premises (if retail franchise)
- update equipment
- comply with current qualifications and training requirements
- attend additional training
The rights of the franchisor on renewal of a franchisee must be considered by both the franchisor prior to offering franchises and the prospective franchisee prior to entering into the franchise.
Please note that certain states have franchise laws that may supersede any contractual requirements for renewal obligations of the franchisee. Consultation with experienced franchise counsel like Spadea Lignana should be obtained to assist with this important analysis. This post is not intended to provide legal advice nor create an attorney/client relationship.