Why would a franchisor decide not to renew a franchisee’s franchise agreement?

Shelley Nadler writes:

It’s usually the practice for franchisors to grant a franchisee the right to renew their agreement at the end of the initial term. However, there are conditions attached.

It’s usual for renewal of the franchise agreement to be subject to the franchisee’s compliance with the terms of the agreement during the initial term. If a franchisee has been served with notices of breach of the franchise agreement by the franchisor, the franchisor may decide not to renew, even if these breaches were remedied.

A condition of renewal may also be a requirement for the franchisee to make significant improvements to their business to bring it up to the standard to which a new franchisee would adhere. There may be a requirement for retraining or the purchase of the latest technology. If a franchisee does not comply with these requirements, a franchisor may decide not to renew the franchise agreement.

There is usually a requirement that the franchisee gives notice to the franchisor that they wish to renew within a certain period prior to the expiry of the initial term. If the franchisee doesn’t do this, the franchisor could decide not to renew the franchise agreement, particularly if the legal term ‘time is of the essence’ is used, which means that if the notice is not provided strictly within the time period set, the right to renew can be lost, even if there is only a slight delay of one or two days.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.