Franchising in Denmark: Set Clear Terms for Duration and Renewal

When growing your existing business through a franchise network, the agreement’s duration needs to suit both the investment required and the working relationship. A short term can put the franchisee’s investment at risk. A long term without clear renewal conditions can create other problems. Here is a practical approach to agreeing duration and renewal before your first franchisee signs.

1. Understand Denmark’s legal framework for agreement duration

Denmark has no specific franchise legislation. Franchise agreements are primarily governed by the Danish Contracts Act and general principles of contract law. There is no statutory minimum term for franchise agreements, and franchisees have no general statutory right to renewal. You therefore need to address both issues yourselves.

However, freedom of contract is not unlimited. Section 36 of the Danish Contracts Act allows unreasonable agreements or terms to be amended or set aside following a case-by-case assessment. The Danish Competition Act and EU competition rules may also limit certain contractual restrictions. A long agreement term, for example, does not automatically mean that every restriction on competition can apply throughout that period.

There is also no franchise-specific registration scheme or legally prescribed pre-contract disclosure package. However, general duties of good faith and disclosure may require material information to be disclosed. A known restriction on the ability to continue the relationship should therefore not be hidden behind vague wording.

Treat duration and renewal as two separate questions: how long will the initial agreement last, and what will be required to continue afterwards?

2. Choose a term that reflects the investment timeframe

Start with the investments your concept requires the franchisee to make. These might include fitting out premises, equipment, an initial fee and the cost of building a local customer base. The aim is not to promise that the investment will be recouped, but to assess whether the agreement’s duration reasonably reflects the financial risk.

Prepare a simple decision sheet covering:

• The investments required at start-up.
• The expected useful life and any residual value of major equipment.
• The time needed to get established and achieve stable operations, based on realistic assumptions.
• Any substantial reinvestment expected during the term.
• The consequences if the agreement is not renewed.

Test a less favourable scenario too. If the outlet takes longer than expected to get established, a short agreement term will put greater pressure on the franchisee. Equally, a very long commitment should not be a substitute for a well-developed concept.

Next, define the start date precisely. Does the agreement run from signature, handover of the premises or the actual opening date? If the launch is delayed, an imprecise start date can reduce the time available for trading. Explain how a delayed opening affects the end date and who can approve a change.

3. Make the renewal mechanism clear

Avoid relying solely on phrases such as “possibility of extension”. They do not explain whether the franchisee has a right to continue or whether the franchisor is free to refuse.

Instead, choose a clear model. This could be a fixed-term agreement with no right to renewal, a right to renew subject to specified conditions, or automatic extension unless either party gives notice within the required timeframe. These models allocate risk differently and should be chosen deliberately.

If renewal depends on conditions, those conditions must be capable of being assessed. Specify, for example, which payment obligations must have been met, how material breaches will be assessed and whether identified shortcomings can be remedied before the decision is made. Avoid a vague requirement that the franchisee’s performance must have been “satisfactory”.

Also clarify the terms for the next period:

• How long will the new term be?
• Will the existing agreement continue, or must a new one be signed?
• Can fees or investment requirements change on renewal?
• By when must the new terms be presented?

A reference to the franchisor’s “then-current agreement” can make it difficult to assess what continuing the relationship will involve. Seek legal advice on the wording and give the franchisee sufficient time to review the changes before having to decide.

4. Establish a clear renewal process from day one

Renewal should not start with a calendar reminder shortly before expiry. Set up a shared timetable when the agreement is signed. It should show the deadline for requesting renewal, when the conditions will be reviewed and the deadline for a written response.

Appoint someone within the franchisor’s organisation to take responsibility. They should gather documentation, coordinate the assessment and ensure that the decision follows the agreement. Use the same assessment template for comparable outlets to make the process transparent across the franchise network.

Also specify how notices must be delivered and who must receive them. A verbal discussion about continuing the relationship should not be relied on alone where the agreement requires formal notice. Confirm the decision and terms in writing before the existing term expires.

Practical takeaway: Decide on the duration, start date, renewal model and deadlines together. Then ask an adviser to check that the agreement actually gives both parties the timeframe and decision-making process you intended.