Franchise renewal disputes occur when a franchisee is at the end of the term of their franchise agreement, and they want to renew their franchise agreement but the franchisor does not allow it. Most franchise renewal terms in franchise agreements provide that the franchisor has the discretion to renew the franchisee’s franchise agreement for another period of time or not. Consequently, some franchisors choose to not renew an agreement if the franchisee was a bad partner, did not perform well, or caused issues for the brand.
Franchisees may dispute this denial if they believe that the reasons for denying the contract were unreasonable or an abuse of the franchisor’s discretion. If you are dealing with franchise renewal disputes in North Carolina, a skilled franchise attorney may be able to help you handle this legal challenge and protect your business for tomorrow.
The franchisor must meet or exceeded all of its obligations and the franchisee must perform all of its obligations through the end of the term of the franchise agreement. Most franchise agreements provide for a five-year, ten-year, 15-year, or 20-year term. At the end of that term, the franchise agreement expires, unless it is renewed. Any deviation from the terms laid out may serve as grounds to deny renewal or even outright terminate the agreement.
There is no time period within which a franchisor must provide notice that they will not renew the agreement. The burden is on the franchisee to provide notice to the franchisor of its intent to renew the agreement. If the franchisee does not provide notice of renewal, then the agreement simply expires. It is not up to the franchisor to take that action. In North Carolina, Franchise renewal disputes are usually the result of a franchisee’s renewal request being denied.
A common condition for franchise renewal is that, almost always, a franchisee must pay the franchisor a renewal fee. It may be a fixed fee or a percentage of the then-current franchise fee, or any other arrangement. Sometimes, these renewals require renovations in order to come into compliance with the franchisor’s current brand standards. Additionally, the franchisee must be in good standing, which means that they cannot be in default of their franchise agreement and they must adhere to all of their obligations under the franchise agreement during the term.
The difference between extension and renewal is that an extension of a franchise agreement is something that is done upfront. That is where the franchise agreement says that the term is for ten years, but the parties negotiate for a 15-year term. The parties mutually agree on that, and that language can be added into an amendment to the franchise agreement, extending the term. A renewal, on the other hand, is done at the very end of the franchise term by signing an updated franchise agreement for the right to continue operations for the next agreed-upon period.
A transfer is when the franchisee transfers their franchise agreement to somebody else. Every franchise agreement defines a “transfer” differently. Most commonly, this is if the franchisee sells their business to someone else. There are a lot of franchise resales where people buy an established franchise as a type of turnkey business operation with an existing revenue stream. However, this may lead to franchise renewal disputes as the franchisee may not be to the franchisor’s liking as they came in without originally working with the franchisor.
An attorney can help you during renewal agreement disputes by informing you of your rights to renew or refuse to renew a franchisee. A seasoned franchise lawyer could advise you on the best ways to meet your franchise system’s strategic goals while protecting your network and brand equity. If a franchisor does not adhere to the renewal terms of their agreement or if they act in bad faith, they can be exposing themselves to a lot of liability. If you are facing franchise renewal disputes in North Carolina, call our offices today to schedule a consultation and start turning your renewal tactics into a reality.