Franchise agreements: planning for renewal

Turning an existing business into a franchise network means thinking beyond the first agreement. From the drafting stage, set out how the relationship may continue when that agreement expires. Poorly planned renewals can create uncertainty over the use of the brand, royalties or required investment. Here is how to establish a clear procedure without promising automatic renewal if that is not what you intend to offer.

1. Specify exactly how the relationship will continue

The term ‘renewal’ can cover several different arrangements. Your agreement should distinguish between them:

• Extension (prorogation) postpones the expiry date of the existing agreement, by agreement reached before it expires.
• Renewal (renouvellement) starts a new contractual period on terms already specified or subsequently negotiated.
• Tacit renewal (tacite reconduction) allows the relationship to continue without a new signature when the specified conditions are met.

Do not let a broadly worded clause determine how your network will operate in future. Specify the chosen mechanism, the length of the new term, the formalities required and the consequences of a failure to respond. Have these provisions checked against the French Civil Code: continuing to perform the agreement after its expiry can have legal consequences, even without signing a new document.

For example, if you want to enter into a new agreement at the end of each term, say so clearly. At the same time, avoid any clause suggesting that paying royalties alone will automatically renew the agreement for an identical term.

Decide before recruiting your first franchisee: do you want automatic continuation, negotiations at every renewal, or an option to renew subject to defined conditions?

2. Set verifiable conditions and a timetable

Renewal conditions should be understandable from the moment a franchisee joins the network. They may include payment of outstanding sums, compliance with contractual obligations or completion of necessary training. Avoid vague wording such as ‘the franchisor’s complete satisfaction’, which is difficult to apply consistently.

For each condition, specify what will be assessed, who will carry out the assessment and, where applicable, whether there is an opportunity to remedy a breach. A long-standing disagreement should not resurface at expiry without having been documented and addressed beforehand.

Then draw up an internal timetable, working backwards from the expiry date:

• review the relationship and any outstanding obligations;
• assess proposed investment;
• communicate the proposed terms for continuing the relationship;
• provide the required pre-contractual information;
• reach a decision and sign before expiry.

This timetable is a planning tool, not a universal statutory deadline. It must accommodate the notice periods specified in the agreement and the business’s operational constraints. Appoint someone to manage deadlines: monitoring them cannot depend solely on the business owner’s memory.

3. Prepare pre-contractual disclosure in France

France has no single statutory framework governing every aspect of a franchise agreement. General contract law, competition law and intellectual property law all apply, among other rules. Where their conditions are met, pre-contractual disclosure is governed by Articles L. 330-3 and R. 330-1 of the French Commercial Code, under the framework commonly known as the Doubin Law.

This framework applies where a trade name, trade mark or trading identity is made available alongside an exclusivity or quasi-exclusivity commitment for carrying on the business. It requires the pre-contractual disclosure document, known as the DIP (document d’information précontractuelle), and the draft agreement to be provided at least twenty days before signing or, where applicable, before any payment required in advance.

Do not assume that an existing franchisee needs no further disclosure. When entering into a new renewal agreement that falls within this framework, prepare an updated DIP and observe the required waiting period. For an extension, tacit renewal or amendment that substantially changes the relationship, ask your legal adviser to establish precisely how the arrangement should be classified and which obligations apply.

Renewal conditions are themselves among the information required under Article R. 330-1. Ensure consistency between the DIP, the agreement and communications sent to the franchisee.

4. Make the commitments for the new term clear

Set out separately what stays the same and what changes: royalties, services, tools, refurbishment work, training or commercial obligations. Simply inviting a franchisee to sign ‘the updated agreement’ does not allow for a proper review.

If you intend to charge a renewal fee, make its amount, payment due date and any associated services explicit. Such a fee is not a statutory requirement inherent in franchising.

For any required works or equipment, explain their purpose and the implementation timetable. Assess whether they make economic sense in relation to the proposed contractual term, without guaranteeing that the investment will be recouped. Finally, keep records of the versions supplied, the dates they were provided and the signed agreement.

Key takeaway: from your very first agreement, establish a clear mechanism for continuing the relationship, verifiable conditions and a disclosure procedure. Renewal should be a decision both sides have prepared for, not a last-minute formality at expiry.