I am an existing franchisor and it is time to renew one of our franchise agreements. What is the process to renew a franchise agreement?
A franchisor has two options when renewing a franchise agreement at the end of its term. The easiest option, though not preferred, is to simply execute an agreement extending the term of the existing franchise agreement, normally accompanied by a Release. This is not preferred because over time a franchisor’s franchise agreement normally evolves and improves so merely extending the term of a 5 or 10 year old franchise agreement may be extending something which has become out of date in some ways.
However, this path is preferable if ease of administration is the goal or if the franchise is in a franchise registration state (CA, HI, IL, etc.) where the franchisor no longer has a current franchise registration.
The other option is to treat the renewal like the sale of a new franchise. This requires disclosure on a current FDD, which in some states means the FDD must be filed and approved or the franchisor otherwise has obtained any necessary franchise approval, waiting 14 calendar days, then entering into a new current franchise agreement, and typically taking a Release from the franchisee as well.
The advantage to this path is to get the franchisee on a new, current franchise agreement, which is up to date to the franchisor’s business model. But the disadvantage is that more work is involved, and, as noted, this type of renewal is treated like a new franchise sale so any needed state franchise approval must be in place first.