Buying a franchise: how to negotiate contract renewal

When joining a franchise network, it is easy to focus on opening your outlet and making your first sales. Yet it is just as important to establish whether you will be able to keep trading under the brand once the agreed term ends. A successful outlet and fees paid on time do not, in themselves, guarantee another agreement. Address renewal terms before buying, rather than waiting until the relationship is nearing its end.

1. Distinguish a right to renew from a promise to negotiate

The Czech Republic has no specific franchise legislation or mandatory pre-contractual disclosure document specifically for franchises. A franchise agreement is generally concluded as an agreement not specifically defined by statute under Section 1746(2) of Act No. 89/2012 Coll., the Czech Civil Code. General contract rules and rules on good faith in pre-contractual negotiations apply, alongside other provisions, such as those governing licensing and competition, depending on the agreement’s content.

The law does not give franchisees a specific automatic right to renew their agreement. The precise wording of the contract is therefore decisive. Ask a lawyer to assess whether the clause genuinely creates an enforceable right to continue, or merely an opportunity to request a further term.

You may encounter three different mechanisms in a draft agreement:

• Automatic renewal: the agreement continues unless either party gives notice to the contrary in time. What matters is who can refuse renewal and on what grounds.
• The franchisee’s right to renew: the franchisee can exercise this right if the conditions agreed in advance are met.
• A new agreement: once the original agreement ends, both parties must agree afresh; continuation is not guaranteed in advance.

The phrase “the parties will negotiate renewal” is not the same as a commitment to renew the agreement. Nor does the franchisor’s past practice replace a contractual right of your own.

2. Set verifiable conditions and a clear timetable

The franchisor may wish to make renewal conditional on timely payment, compliance with standards or completion of training. As a buyer, you need to ensure that compliance with these conditions can be verified objectively. Wording such as “the franchisor’s overall satisfaction” makes the outcome difficult to predict.

For each condition, ask yourself: what document will prove that I have met it? For payments, this might be a statement of amounts owed; for training, confirmation of attendance. If renewal depends on the outlet’s performance, the relevant assessment period, calculation method and source of data must all be clear.

Also negotiate a distinction between a serious breach of contract and a minor fault that can be put right. Require the franchisor to identify specific shortcomings and allow an agreed period to remedy them. Otherwise, a problem resolved long ago could become a disputed reason for refusing renewal.

Set out the full procedure in the agreement:

1. The earliest and latest dates on which you can request renewal.
2. How the request must be delivered and to whom.
3. Which supporting documents it must include.
4. The deadline for the franchisor to confirm that the conditions have been met or raise specific objections.
5. The consequences if the franchisor fails to respond.

Do not simply assume that silence from the franchisor means consent. If silence is intended to trigger renewal, that mechanism must be agreed in clear and legally effective terms. Set deadlines that allow you to plan your lease, financing and investment around the decision.

3. Calculate the cost of the next contract term

A right to continue may be of limited value if it depends on accepting whatever new financial terms are proposed. Before signing, separate the right to renew from the question of what renewal will cost.

In particular, establish whether there is a renewal fee, whether ongoing payments will change and whether the outlet must be refurbished. Also ask about new equipment, compulsory training and the cost of implementing an updated franchise concept. These are not automatic statutory obligations: their basis and scope must be established in the specific agreement.

If an exact amount cannot be determined in advance, ask for at least a clear calculation method, a defined scope of works or a budget approval procedure. You should know the costs before committing irrevocably to another term.

Pay particular attention to any requirement to sign the “current standard agreement”. This may mean changes to substantive rights and obligations, rather than a purely administrative renewal. Negotiate early access to the new wording and specify which key terms must remain unchanged.

In your financial plan, distinguish the contractually secured term from any possible continuation. Do not assess the investment as though a further term were guaranteed if it remains subject to the franchisor’s decision.

4. Check investment requirements near the end of the agreement

A particularly difficult situation arises when the franchisor requires an expensive upgrade shortly before the agreement ends. You could pay for alterations to meet brand standards without having a further term confirmed in which to benefit from them.

Before buying, propose rules for major investments towards the end of the contract. Possible solutions include making the investment conditional on a binding commitment to renewal, agreeing a postponement or setting out a financial settlement in advance. Do not assume that you are automatically entitled to any of these options.

Check the length of the renewed term too. The word “renewal” alone does not tell you whether it will last as long as the original term. A short extension may not make financial sense if a substantial refurbishment is required.

Practical takeaway: Before signing, obtain clear confirmation of who decides on renewal, under what conditions, by when and at what cost. Make contract renewal part of your decision to buy, rather than something to put in the diary for the final year.