As with most legal documents, a franchise agreement has a term or duration for the life of the contract between the franchisor and franchisee. As a franchisee, you want to make sure the term is long enough for you to recoup your investment and turn a profit before possibly exiting the system. As a franchisor, you certainly want the franchisee to have that opportunity (as a successful franchisee benefits everybody), but you do not want the term to be so long that you become stuck with a frustrating franchisee who you cannot, or do not want to, terminate.
Accordingly, the renewal provisions of a franchise agreement are exceptionally important as they will set the terms and conditions, if any, under which a franchisee may be permitted to renew its agreement and continue in the system.
Franchisors may want to consider some of the following conditions in determining whether they want a franchisee to renew the agreement for another term:
• The franchisee must have complied with the agreement, including any performance criteria and operating standards