Buying a franchise: safeguarding renewal

Before buying a franchise in France, ask yourself what conditions you will need to meet to remain in the network after the initial agreement ends. A profitable business does not guarantee that the relationship will continue. Planning ahead for renewal helps protect business continuity without confusing commercial prospects with contractual rights.

1. Distinguish between renewal, extension and a new agreement

A fixed-term agreement normally ends on the agreed date. Franchisees have no general right to renew their franchise agreement. The ability to continue depends, in particular, on the terms signed and the parties’ agreement.

Read the provisions dealing with expiry carefully, distinguishing between three mechanisms:

• Extension: the parties postpone the agreement’s end date before it expires.
• Renewal: a new contractual period begins, on the terms already provided for or subsequently agreed.
• Entering into a new agreement: the franchisor offers a new version, whose obligations may differ significantly.

An automatic renewal clause deserves just as much attention as a clause requiring an express request. Check how long the renewed relationship will last, the deadline for opting out and the notification requirements.

Ask the franchisor for a practical example: ‘If my agreement ends on this date, what steps must I take and what document will I sign to continue?’ A reassuring verbal answer is no substitute for a clear contractual clause.

2. Understand the French legal framework

France has no single statutory framework governing every aspect of franchise agreements. General contract law applies, including the provisions of the French Civil Code on the binding force of contracts and their performance in good faith. However, the requirement to act in good faith does not, in itself, create an obligation to renew.

Pre-contractual disclosure is subject to specific rules: Article L. 330-3 of the French Commercial Code, introduced by the so-called Doubin Law of 31 December 1989, covers arrangements in which a trade name, trade mark or trading identity is made available alongside a commitment to exclusivity or near-exclusivity in carrying on the business.

Where these conditions are met, the pre-contractual disclosure document, known in France as the DIP, and the draft agreement must be supplied at least twenty days before signing or before any advance payment covered by these rules. Article R. 330-1 specifies, among other things, that the disclosure must address renewal conditions.

Before buying, therefore, compare the description of renewal in the DIP with the wording of the agreement. Later, if the franchisor offers you a new agreement, have an adviser check which disclosure obligations apply to that transaction and the relevant deadlines. Being an existing franchisee is no reason to sign without a review.

3. Turn a promise into a clear, verifiable procedure

Wording such as ‘renewal possible subject to the franchisor’s satisfaction’ leaves considerable uncertainty. Find out which criteria are actually used and seek to have them set out in writing.

Your review should cover four points:

• Who initiates the process: who must request renewal, at which address and in what form?
• The timetable: what is the deadline for requesting renewal, and when must the franchisor respond?
• The criteria: up-to-date payments, compliance with the franchise concept, audit results or other defined requirements.
• Putting things right: is there an opportunity to remedy a breach before the decision is made?

If the criteria rely on audits, ask how the results are shared and discussed. Avoid discovering objections at the end of the term that have never previously been raised.

Do not assume that silence means consent. Ask for its effect to be clarified and retain evidence of notifications. A schedule shared with your adviser, setting out deadlines and the documents to submit, reduces the risk of losing an opportunity to continue because of a simple administrative error.

4. Cost out continued operation before buying

Renewal may come with new financial terms. Ask whether a renewal fee applies, how it is calculated and whether continuing requires you to upgrade your premises. These costs do not always apply and will not necessarily be the same as the initial joining costs.

Ask your accountant to model two scenarios: continuing on the proposed terms, or ceasing to operate under the brand when the agreement expires. The aim is to assess how dependent you are on renewal, particularly if loans or lease commitments will still be outstanding.

Finally, ask whether you will have to accept the agreement offered to new franchisees at that time. Without a written guarantee, do not assume that your current terms will be retained.

Key takeaway: before signing, obtain a clear renewal procedure, identifiable criteria and a reliable picture of the costs. Assess your purchase without treating continued operation under the brand as a guaranteed right.