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When a franchisee can renew or extend
A franchisee can renew or extend their franchise agreement, depending on the terms of their franchise agreement.
Even if the agreement gives the franchisee a right to a further term, there may be conditions attached. For example, a franchisor may require the franchisee to refurbish the premises, pay a renewal fee or enter into the franchise agreement under different terms.
Different rules apply to new vehicle dealership agreements.
Notifying franchisees of the end of term
Franchisors must tell franchisees whether they'll extend the franchise agreement or grant another agreement. The franchisor does this by giving the franchisee an end of term notice.
The franchisor must do this at least 6 months before the end of the franchise term or, if the term of the agreement is for less than 6 months, at least one month before the end of the term.
If the franchisor intends to renew or extend the agreement, the franchisor must tell the franchisee in their end of term notice that they are entitled to a copy of the disclosure document. This is unless the franchisee has already requested an end of term notice in the last 12 months.
Month-to-month or ‘holding over’ arrangements
Instead of renewing or extending an agreement, a franchisor and franchisee may enter into a month-to-month, or ‘holding over’, arrangement to extend the agreement beyond its initial term.
In our view, the obligations in the Franchising Code of Conduct for extending a franchise agreement still apply before a month-to-month or holding over arrangement can go ahead. This means the franchisor must still give notice and provide disclosure.
Documents to be provided when renewing or extending
If a franchisee is renewing or extending their agreement, the franchisor has to give them the same kinds of documents that they give to potential and new franchisees at least 14 days before the franchise agreement is renewed or extended.
Franchisees should read this information carefully, even if it seems similar to information they’ve received before. The franchise network and brand may have changed since they signed the previous agreement with the franchisor.
Franchisees should:
- look closely for changes to the franchise agreement and disclosure document
- get legal, business or accounting advice before signing, as franchisees who are renewing or extending an existing franchise agreement won’t have a cooling off period if they change their mind.