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Franchising can benefit both the franchisor and the franchisee. For the franchisor, franchising means fast business growth, higher visibility, and more profit. For the franchisee, they can step into an already established brand, having a clear plan on how to run the business.
In this article, we’ll run through the franchisor’s obligations to extend a term, as well as look at what franchisees can do as the end of a franchise term nears.
What Is A Franchise Term? Why Would It Be Extended?
A Franchise Term sets out how long the Franchise Agreement will operate for, as they normally run for a set amount of time. Both franchisors and franchisees will understandably want to extend the franchise term if business is going well.
If for any particular reason either party wants to end the Franchise Agreement, they can choose not to renew the franchise term, or to terminate the franchise agreement.
What Do You Need To Do To Extend A Franchise Term?
Before a franchise term ends, a franchisor must do the following:
- Let franchisees know whether they will extend the franchise or begin a new franchise agreement. This is called an ‘end of term notice’.
- At least 6 months notice must be given, or if an agreement has only been in place for 6 months, at least 1 months notice must be given.
- When extending the franchise, an end of term notice must also disclose that the franchisee can have a copy of the disclosure document.
You can read more in general about what documents franchisors need from the beginning here.
What Are Disclosure Obligations?
You would have given a disclosure document to the franchisee at the beginning of your relationship. But what you may not know is, as a franchisor, you must also renew and maintain this disclosure document.
Franchisees have a right to access a current disclosure document before renewing or extending their franchise agreement with you. Franchisees can ask for a disclosure document every year.
A disclosure document should include;
- Information on legal proceedings against the franchisor
- Whether the franchisee is able to extend, renew or enter into a new agreement when the franchise agreement reaches its term
- Fees the franchisee may have to pay
- Financial details
- Contact details of franchisees, past and present
What Happens If Franchisors Don’t Comply With The Agreement?
If franchisors don’t do the above, parties can take enforcement action. The process for this would also be set out in your Agreement, such as mediation or arbitration.
There may also be relevant fees to pay.
To ensure you understand how this would work, it’s wise to get a lawyer to review your Franchise Agreement.
What Next?
If you are a franchisor, it’s imperative you stay organised and submit and obtain paperwork by the deadlines according to your Franchise Agreement.
If you are a franchisee, remember you can request disclosure documents every 12 months and don’t need to wait for the franchisor to take the initiative.
If you are a franchisor or franchisee and need help understanding your obligations, don’t hesitate to reach out to us on 08081347754 or by email at [email protected]. We specialise in franchise law and can talk you through your situation.
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