Many franchise agreements have the term “5 x 5.” This is an initial five-year period and an option for an additional five-year extension. The duration of the franchise agreement and renewal fees has a direct impact on the value of the deductible. Most franchise agreements last from five to twenty years and most franchise agreements give the franchisee the right to renew the contract under certain conditions. In the course of an extension, it is more usual for the current agreement to continue without amendment. While some franchise agreements do not allow renewal or renewal, most do allow one or both. The least desirable approach from the franchisor`s point of view would be an agreement that would give the franchisee the right to extend the contract indefinitely for the term of office, as it would lock the franchisor into some form of agreement as long as the franchisee wished. An agreement that allows both parties to terminate their contract at the end of a term is better for the franchisor, but not usual when franchising, because the starting fee must be taken into account. As a general rule, the agreement for a mandate, with perhaps an extension period, with a renewal fee if the franchisee wishes, will be on the terms of a new franchise. Exceptions to this approach could consist of proposing an extension for half of the original tax, which will then be charged to new franchisees, or at no departure fee. The franchisee should sign and return the contract as a written record. A notice should be issued with the corresponding provision of the franchise agreement in order to draw the franchisee`s attention to this point. The questions that arise in a company over a period of time are different in each franchise agreement.
Therefore, the action you take depends on it: every time an entrepreneur plans to create a new franchise network, one of the inevitable questions is the length of their franchise agreement. You may not be surprised to learn that there is no objective answer to this question, because the answer must take into account all the details of each situation. The definition of the ideal duration of a franchise agreement will be the result of the franchisor`s objectives, which will become clear during his discussion on this issue with his lawyers. Each franchisee must sign the franchise agreement and the franchisor will also sign the document. A word of caution, a franchise agreement is a binding legal document and you can have a franchise lawyer checked on your behalf before signing. Cross-referencing these considerations is the competitive factor. The potential franchisee will look at the term proposed by competing franchise systems per dollar of investment. Competition can be franchises in the same or entirely different companies, depending on whether potential franchisees want to create the type of franchised business or whether they are looking for the right franchise for the purchase. Do not speculate on conditions that appear vague in a franchise agreement. You could increase your financial risk by misinterpreting important details. Don`t underestimate the importance of your franchise agreement.