What is Renewal Term?
What is Renewal Term?
First, let’s understand What is Renewal Term?
As per the Franchise agreement, a renewal term is considered to be a duration of time when the franchisee and franchisor come together to make a call if the contract will be renewed further, with consideration to legal perspective, adherence to the law, outcome of the business and understanding between the two parties.
Franchise agreements are articulated or made abiding by the law with mutual understanding of both franchisor and franchisee for a certain period. Understanding the Franchise agreements and their renewal process is very crucial for you to get deep knowledge before investing in the franchise industry. This makes your strategic planning and decision-making process much easier.
Some important points related to Renewal of franchise agreement:
1. The time -period of the Renewal of the agreements depends on the period of the contract as agreed in the initial stage of the franchise agreement.
2. When the franchisee performs consistently well and yields good profit by adhering to the terms agreed in the contract period, the franchisor becomes interested in further renewal.
3. However, an automatic renewal process is not is available. In the Franchise agreement, there is a mandatory expiry date mentioned as per the Agreement law, of course, with a mutual understanding and clarity between the franchisor and franchisee. So, as the day of expiry of the contract approaches, well in advance, both franchisor and franchisee meet for a valuable and potential discussion on the renewal process with any addition or alteration of terms and conditions.
4. This meeting should be done with the guidance and advice of legal experts, who have a very good grasp and updated knowledge on the Franchise business and its relevant legal aspects.
5. As a franchisee you have to keep in mind and be prepared that during the renewal of contract discussion, the franchisor can come up with some changes, of course keeping in line with the law.
6. If you are into a franchise business, as a franchisee you have to analyze a few below-mentioned points when you think to go for renewal. Here are the points:
7. If the cost you will bear is justified for renewing the terms in your franchise business like the renewal fees, training worth the service and cost bringing profit, set up cost, the addition of upgraded equipment or service.
8. In case the franchisee decides not to renew the franchise agreement after the end of the contract tenure, it is the duty of the franchisee to intimate about the exit decision at least 6 months before the term ends. The exit has to be made in a systematic with the advice of your legal guides.
9. The franchisor can terminate the contract if there is any kind of breach of contract, failure of payments, unable to maintain the brand goodwill. For serious breach of contract, the franchisor in their legal capacity can penalize the franchisee as well.
10. If the franchisee decides to sell the unit, the first and foremost duty is to inform the franchisor, very well in advance. The franchisor will look forward to agreeing on selling to an authentic buyer to maintain the brand name and have transparency with the franchisor. Both parties get involved to advertise regarding the sale of the franchise unit. The final decision is taken by the franchisor keeping into consideration all the benefits.
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