Renewal Agreements — The Ticking Time Bomb

Is your franchise agreement renewal comes from?

If so, in order to continue in business, you have to sign a new franchise agreement when their old agreement expired. The renewal of its agreement may be a time bomb. Most of the state to renew agreements, the franchisee has to sign it comes to the then current form of franchise agreement. That is, you will be asked to sign the agreement that the franchisor is making its new franchisees sign.

This new agreement will be substantially different from that one is about to expire. The franchise that you’ve had for ten years was changed suddenly and was operating under a new and largely modified document, and the rights it had under the old agreement may be removed.

For example, franchise agreements that originally appeared to provide an unlimited number of renewals may be limited to one or two renovations, and the term can be reduced from ten to five years. Despite its old agreement that grants an exclusive territory, the new agreement may allow the franchisor to establish new franchise or company-owned units nearby. Or the new agreement may provide that the franchisor can distribute the products in its territory through alternative channels such as the Internet or not brand outlets. Franchisors can also change the royalty rates, advertising contributions and the level of service they are obligated to provide its franchisees.
What can you do?

First, you need to know their rights. Have a professional review its franchise agreement and the original document of renewal. Find out what the differences are between the two. The original franchise agreement may provide more rights to you or you know that the franchisor wants to acknowledge. In some cases, the old agreement obliges the franchisor over the first ten years of time. It may not allow the franchisor to take away territory or invade its territory. The key is to know their rights and to enforce those rights.

An option for franchisees whose agreements expire is not renewed. If you want to stay in business, the concern here is that their franchise agreement may have a non-compete clause prohibiting the holding of a company similar to the franchise business for a period of time after the agreement franchise has expired. A franchisor can seek to enforce this clause is determined that its continued activities in the company are affecting the franchise system. This supply contract should be reviewed carefully to determine whether it is due. If the limitation is unreasonable in terms of the length of the restriction or the geographical area covered, it may be difficult for a franchisor to enforce.

Again, the key is for you to know your rights.

Tags: Business, Contract, Directories, Due diligence, franchise, franchising, Non-compete clause, Opportunities