Franchising in Canada: planning for contract renewal

Turning an existing business into a franchise means thinking beyond the first opening. How will a franchisee continue trading when their agreement expires? Planning for renewal as you build your franchise network helps clarify expectations, coordinate property commitments and reduce last-minute decisions. Here is how to establish a process you can use from your very first agreement.

1. Define exactly what you are offering

Renewal should not rest on a vague commercial promise such as “you can carry on as long as everything is going well”. Ask your lawyer to make clear whether the agreement grants a conditional renewal option or instead provides for fresh negotiations, with no automatic right to continue.

Also distinguish renewal from a simple extension. Keeping the existing agreement in place for a few extra months does not necessarily have the same consequences as entering into a new agreement for a new term. The document’s title alone does not determine its legal treatment.

Your draft agreement should answer these questions:

• Who must request renewal, by what deadline and in what form?
• How long will the new term last?
• What conditions must the franchisee meet?
• Will they have to sign the version of the franchise agreement in use at that time?
• What fees will be payable, and how will they be determined?
• What happens if a condition remains unmet when the agreement expires?

If you intend to require a new agreement, explain clearly that some terms may change. Do not present renewal as a mere formality if future commitments could differ significantly.

2. Make the conditions verifiable and achievable

A useful condition can be checked against facts. For example, confirming that no payments are overdue or that specified training has been completed is easier than assessing a requirement for the “franchisor’s complete satisfaction”.

Prepare an internal checklist linking each contractual condition to supporting evidence, a person responsible and a verification date. This checklist does not create new obligations: it helps you apply those already agreed.

Consider practical dependencies too. If the franchisee must have premises available throughout the new term, compare the proposed duration with the lease term and any extension options. Renewing a franchise agreement does not, in itself, renew the commercial lease.

Assess the combined costs before setting your conditions. Renewal fees, training, equipment and any refurbishment work may all fall due at the same time. The aim is not to guarantee the franchisee’s funding, but to help them plan for the proposed commitments rather than discover their scale as the expiry date approaches.

Finally, avoid adding criteria in a letter or checklist that fall outside the contractual framework without legal review. An administrative tool should not quietly alter the parties’ rights.

3. Check disclosure requirements before any commitment

In Canada, franchise-specific rules are governed at provincial level. Renewal is not automatically exempt from disclosure obligations simply because the franchisee already knows the brand.

Manitoba’s official guide to The Franchises Act and its regulation states that a disclosure document may be required in certain renewal circumstances. In British Columbia, the provincial franchise legislation expressly includes renewals and extensions within its scope. You must then establish whether an exemption applies to the particular case.

Where disclosure is required, the general rule is that the disclosure document must be provided at least fourteen days before the signing or payment covered by the applicable legislation. The precise rules, exceptions and conditions for an exemption must be checked before asking the franchisee to make a commitment.

In Quebec, there is no franchise-specific legislation imposing this provincial disclosure regime. The general provisions of the Civil Code of Québec, particularly those relating to contracts and good faith, still apply. This does not remove the need to communicate the proposed terms adequately.

Have each renewal reviewed sufficiently early, considering the province concerned, continuity of operations, proposed changes and documents to be signed. Do not automatically reuse an exemption assessment made for another franchisee.

4. Set up a timetable and keep a record of decisions

As soon as the first agreement is signed, record its expiry date, the contractual notice period, relevant lease dates and the person responsible for follow-up. Set internal reminders early enough to allow for legal review and discussions with the franchisee.

Then retain the renewal request, the checks carried out, the conditions communicated and the decisions made, together with the reasons for them. In provinces with franchise legislation, the duty of fair dealing governs the performance of the agreement. A consistent, documented approach helps ensure that comparable situations are handled without arbitrary decisions.

Key takeaway: before offering your first franchise, prepare a clear renewal clause, a checklist of conditions and a renewal timetable. Then have the disclosure obligations for each case checked before any signing or payment.