Franchising in Canada: planning for contract renewal

Turning an existing business into a franchise means thinking beyond the first opening. What will happen when the first agreement expires? Planning for renewal when drafting the agreement helps protect business continuity across your outlets and maintain trust within your franchisee community. The aim is not to promise a perpetual relationship, but to set out a process that is clear, workable and legally sound.

1. Distinguish between the initial term and the right to renew

A fixed-term agreement does not automatically guarantee a further period of operation. Before having your agreement drafted, decide whether you will offer a conditional right to renew, an opportunity to negotiate a new agreement or another arrangement approved by your lawyer.

This distinction must be clear both in the agreement and in your business discussions. Avoid presenting a franchise as unconditionally renewable if its continuation depends on several criteria.

Prepare a decision checklist setting out:

• the initial term and the length of any possible additional terms;
• the deadline by which the franchisee must give notice of their intention;
• the conditions to meet and the documents to provide;
• the decision-making process and the consequences of a refusal;
• how continued operation after expiry will be handled.

Also check how the agreement aligns with the commercial lease. Renewing a franchise is of little use if the franchisee loses the right to occupy the premises at the same time. Conversely, a lease with a long remaining term can become a substantial liability if the franchise ends.

2. Set verifiable and proportionate conditions

Renewal conditions must be understandable and capable of being monitored throughout the relationship. Vague wording such as “to the franchisor’s complete satisfaction” is no substitute for precise operational criteria and may lead to disputes.

Choose criteria that can be documented: payments up to date, required training completed, compliance with essential standards and identified breaches remedied. Distinguish between a minor shortcoming and a serious or persistent problem. Where appropriate, provide detailed notice and a reasonable opportunity to put matters right.

If you intend to require the franchisee to sign the current version of the agreement on renewal, have your lawyer define the scope of that condition. It may significantly change the franchisee’s obligations; it should not be used to introduce an unexpected shift in the commercial balance of the relationship.

Keep supporting records too. Site visit reports, notices of non-compliance and confirmations of remedial action should be dated and retained. A decision supported by consistent evidence is easier to explain than an assessment pieced together as the expiry date approaches.

3. Plan ahead for refurbishment and upgrades

On renewal, you may wish to modernise the fit-out, replace equipment or introduce new digital tools. Establish from the outset how these requirements will be determined and communicated, without claiming to know every future need today.

For each proposed investment, consider three questions:

• Is it necessary for safety, compliance or consistency across the franchise concept?
• Can it be phased in without compromising the customer experience?
• Does the remaining operating term allow the franchisee reasonably to assess its economic value?

Base your requirements on quotations and observations from your existing outlets, rather than an improvised estimate. Take account of work already completed and the actual condition of the equipment.

The agreement should specify the process to follow, while the schedule of works can be tailored to the individual circumstances. Have any renewal-related fees, and the way they are presented in the relevant documents, reviewed. The franchisee must be able to assess the full extent of their commitments, not just a standalone administration fee.

4. Check provincial rules before renewing

In Canada, renewal is not solely a contractual matter. Provincial franchise rules may also apply. In Manitoba, The Franchises Act covers, among other things, certain renewals or extensions where all or part of the franchised business operates in the province.

The Act provides for a duty of fair dealing in the performance of the agreement. Unless an applicable exemption is available, it also requires a disclosure document to be delivered at least 14 days before the first signing or payment covered by its provisions.

Do not assume that an existing franchisee is automatically exempt from disclosure requirements. Renewal exemptions depend on the provincial legislation and the circumstances, including changes to the relationship. Have the new agreement and proposed changes reviewed before requesting a signature or payment.

Quebec has no franchise-specific legislation. The Civil Code of Québec applies, including its rules on contracts and good faith. Contractual provisions must therefore be drafted and implemented within that framework.

5. Put a monitoring calendar in place from the first signing

Create a register of agreement and lease expiry dates, along with deadlines for required notices. Assign responsibility to a named person and set reminders early enough to allow for discussions, legal checks and any necessary works.

Then keep a written record of each stage: the franchisee’s intention, the compliance review, the proposed conditions and the final decision. An informal conversation is no substitute for the notices required under the agreement.

Key takeaway: before granting your first franchise, test your renewal procedure against a hypothetical case. If deadlines, criteria or responsibilities remain unclear, clarify them before signing.