Buying a franchise: how to secure renewal of your agreement

When joining a franchise network, it is easy to focus on opening your outlet and attracting your first customers. But it is just as important to ask whether you will be able to keep trading under the brand once the agreed term ends. Strong results and a trouble-free relationship do not, on their own, guarantee that you can continue. Check the renewal terms before buying a franchise, rather than waiting until the agreement is about to expire.

1. Distinguish a promise to negotiate from an actual right to continue

The Czech Republic has no dedicated franchise legislation. A franchise agreement is usually an agreement of a type not specifically defined by statute, governed by Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on its content, it may include licensing or sale and purchase provisions, for example. Czech law does not prescribe a specific mandatory pre-contractual disclosure document for franchises either; general pre-contractual duties still apply.

Franchisees have no specific statutory right to renew a franchise agreement. The wording of the agreement is decisive. A duty to act in good faith should not be confused with a duty to enter into a further agreement. Nor is a franchise network’s code of ethics law: on its own, it does not replace a specific contractual entitlement.

When reviewing the draft agreement, distinguish between three situations in particular:

• An opportunity to request renewal: you can submit a request, but the franchisor retains the decision.
• A duty to negotiate continued operation: both parties must enter into discussions, but the outcome is not necessarily guaranteed.
• A contractual right to renewal: if you meet the conditions set in advance, you can secure continued operation through the process described in the agreement.

Pay attention to automatic renewal too. Find out whether either party can prevent it simply by giving notice, and what deadline applies. Automatic renewal with broad scope for either party to opt out offers a different level of certainty from a renewal right that the franchisee can exercise.

2. Turn renewal conditions into a verifiable checklist

Wording such as “renewal is subject to the franchisor’s satisfaction” is of little help when planning ahead. Ask for conditions whose fulfilment can be demonstrated. These might include paying amounts due on time, completing training or meeting agreed operating standards.

Check four things for each condition: precisely what it means, the period over which it is assessed, who assesses it and how you can challenge the outcome. If financial performance is assessed, the agreement should specify both the measure and the data source. Otherwise, there may be disagreement over whether the test concerns turnover, profit or another figure.

A requirement that the franchisee must “never have breached the agreement” deserves particular attention. Even an administrative error corrected long ago could then become an obstacle to renewal. Negotiate a distinction between serious and minor failings, and an opportunity to remedy any breach that can be put right before the final decision is made.

Ask about past practice as well. Have any franchisees been refused renewal? For what reasons? Speaking to other members of the franchise network will help you understand how the process works in practice, but their experience is no substitute for your own contractual protection.

3. Agree a process that avoids a last-minute decision

Knowing that you can request renewal is not enough. You need a timetable that leaves room for decisions about staff, stock and other commitments. The more complex the operation, the more important it is to have certainty early on.

The agreement should clearly state:

• the earliest and latest dates on which you can exercise your right or submit a request;
• to whom notice must be delivered, and how;
• which supporting documents must be enclosed;
• the deadline for the franchisor to confirm that the conditions have been met or raise any concerns;
• how shortcomings will be remedied and disputed assessments resolved.

Do not automatically treat silence from the franchisor as consent. A lawyer must assess the consequences of inaction under the specific contractual mechanism. If inaction is intended to trigger renewal, this must be expressly and unambiguously agreed, including the conditions and the point at which renewal takes effect.

Put the deadlines in your calendar as soon as you sign, and keep proof of delivery. Also compare the decision timetable with the term of your financing and other long-term commitments. Committing to extend those obligations before you know whether you have the right to continue using the franchise concept is risky.

4. Check exactly which terms will apply after renewal

A clause stating that “the agreement may be renewed by signing the franchisor’s current standard agreement” may not ensure continuation on predictable terms. The new version could change the allocation of responsibilities, the scope of your rights or the dispute resolution process. Renewal is therefore about more than a new expiry date.

Before signing, establish whether the existing agreement will be extended or a new one must be signed. Agree the length of the next term and identify which provisions will remain unchanged. If the franchisor requires its latest standard agreement, negotiate early disclosure of the complete draft and clear limits on permissible changes. For an international brand, also have a lawyer check the governing law and the provisions on court jurisdiction or arbitration.

Give your lawyer the agreement and all schedules and annexes referred to in the renewal mechanism. Ask for a straightforward answer: can you secure renewal by taking the required steps on time and meeting the conditions, or do you still depend on a fresh decision by the franchisor?

The practical takeaway: Before buying a franchise, establish in writing who decides on renewal, under which conditions, by what deadline and on which contractual terms. A mere promise of a future agreement provides no certainty for a long-term investment.