Buying a franchise: Secure your right to renew the agreement

When you buy a franchise, you are not necessarily buying the right to continue for as long as the business performs well. A fixed-term agreement can expire even if you have built a loyal customer base and comply with the franchise system. Before signing, you should therefore establish whether you can remain part of the franchise network. This is not simply about the length of the agreement, but about who decides what happens afterwards.

Know the difference between negotiation and a right to renew

Denmark has no specific franchise legislation and no statutory right for franchisees to renew a fixed-term franchise agreement. Nor is there a specific statutory minimum or maximum term for franchise agreements. Any right to renew must therefore be expressly agreed.

Franchise agreements are governed by the Danish Contracts Act and general principles of contract law. Depending on the arrangement, other legislation may also apply, including the Danish Competition Act, Marketing Practices Act and Business Lease Act. Section 36 of the Contracts Act allows unreasonable contract terms to be amended or set aside, but you should not base your purchase on the assumption that this provision will secure an extension later.

Denmark requires neither specific franchise registration nor a prescribed pre-contractual disclosure document. However, general duties of good faith and disclosure may require material information to be provided. The absence of specific rules does not mean that the franchisor is free to mislead you.

Pay particular attention to the wording of the renewal clause:

• Right to request renewal: You can ask for a further term, but the franchisor may be entitled to refuse.
• Right to negotiate: The parties must discuss continuing the arrangement, but are not necessarily obliged to reach agreement.
• Right to renew: You can insist on continuing if clearly specified conditions are met.

Wording stating that the agreement “may be extended by mutual agreement” does not, in itself, give you a unilateral right to continue.

Make the conditions measurable and the deadlines clear

A right to renew is only useful if you can understand how to meet its conditions. Check whether renewal depends on timely payment, completion of training, quality checks or specific business performance targets. Ask for the criteria to be defined precisely enough for both parties to assess them on the same basis.

Vague requirements such as “satisfactory performance” or “a good working relationship” can create uncertainty. Ask who assesses compliance, what evidence they use and whether you will have an opportunity to remedy any shortcomings. Also establish whether a minor past breach could prevent renewal even if it has been remedied.

Draw up a simple timeline showing:

• the date the current agreement expires;
• the deadline for exercising the right to renew;
• the franchisor’s deadline for responding or raising objections;
• any deadline for remedying shortcomings;
• the point by which the terms for the next period must be settled.

Also specify how notice must be sent and to whom. An unclear procedure can make an otherwise valuable right difficult to exercise. Ask your adviser to check the consequences of receiving no response; silence should not simply be treated as acceptance.

Check the terms for the next agreement period

A right to a further term is not necessarily a right to continue on the same terms. The clause may require you to sign the franchisor’s standard agreement in force at the time of renewal. The financial and operational terms for the next period could therefore differ from those of the first.

Ask three questions: How long will the new term last? Which terms can change? And what happens if you do not accept the changes?

In particular, check whether renewal triggers a new one-off fee, compulsory refurbishment or replacement of equipment. The aim is not just to establish the cost, but to understand whether these conditions make your right to renew dependent on an investment you cannot finance.

One practical point to negotiate is a requirement for significant new conditions to be disclosed before your deadline for choosing renewal. Also consider whether certain key terms should be agreed in advance. These are suggested contractual provisions, not rights automatically granted under Danish law governing franchises.

Assess the purchase without assuming an extension

Distinguish between the term you have actually secured and the period you hope to obtain. If the investment only makes financial sense with an additional term, a non-binding opportunity to negotiate is not the same as certainty.

Ask your accountant to assess the purchase based on the guaranteed term. Pay particular attention to investments that will still have a substantial residual value when the agreement expires but are difficult to use outside the franchise system. There is no general statutory right to compensation simply because a franchise agreement expires or is not renewed.

Then ask a solicitor to review the renewal clause as a whole: the right, conditions, deadlines and future terms must work together.

Practical takeaway: Do not buy on the assumption that a good working relationship will automatically continue. Secure a clear right to renew, or assess the price and investment on the basis that the agreement will end on its expiry date.