You may be charged a renewal fee to cover the franchisor’s administrative costs associated with the renewal, such as its legal fees or in-house expenses devoted to the renewal. A renewal fee may be expressed as a flat fee, a percentage of the initial franchise fee or as an assurance that the renewal fee will not exceed a specified monetary ceiling.
Notice of intent to renew
You will be given a window within which to notify the franchisor that you intend to renew the agreement. You should ensure this window is reasonable and does not force you to make a decision about renewal too far in advance of your initial term’s expiry date. There is no standard length for this window, but it may, for example, not be practical to require you to provide your notice of renewal more than nine months before the term expires.
You may be required to take certain steps to update your storefront/location to reflect the current image and standards of the franchise at the point of renewal. This can sometimes be a sticking point between you and your franchisor, as the franchisor wants to ensure your location is consistent with new or updated standards and design, while you will want to limit expenses to what you consider to be reasonable. If this is a concern, consider negotiating a price ceiling (i.e. a maximum amount you will be asked to spend on upgrades or renovations) on this condition.
Lease and sublease conditions
You must not be in default of your lease or sublease and must have the right to remain in possession of the franchise premises for the renewal term. If possible, the term of your lease/sublease (including renewal terms) should coincide with the terms of your franchise agreement. If the term of your lease differs from the term of your franchise agreement, you may want to request the franchisor’s assistance in finding another location for the renewal term if you think you might lose possession of the premises when it comes time to renew.
Release of potential claims
You may be required to sign a release in the franchisor’s favour with respect to all potential claims up until the renewal date. However, recent case law in Ontario, which was decided in favour of a class of franchisees, concluded that any release requested as a condition to renewal cannot include a release of those rights to which franchisees are entitled under franchise legislation.
For example, the franchise statutes of Ontario, Alberta, PEI and New Brunswick all include various rights a franchisee cannot waive, such as the right to associate, the right to receive a disclosure document and the mutual duty of franchisors and franchisees to act in good faith during the course of the franchise relationship. Therefore, any release you are asked to sign cannot include a waiver of any of these rights.
New franchise agreement
You may also be required to sign a new franchise agreement with different terms than were included in your original agreement. This could be contentious, as you will obviously not want to pay higher royalty fees, make larger advertising contributions, be bound by different administrative fees or have to comply with new standards and controls that are vastly different than those you to which you initially agreed. However, franchisors will want to ensure the new franchise arrangement is consistent with the terms and conditions it imposes on new franchisees. If the length of your initial term is short (e.g. less than five years), you may be able to negotiate some variation of this requirement with your franchisor.