Franchise Renewal in Hong Kong: Agree Renewal Rights, Approval Conditions and Costs Before Signing

When buying a franchise, do not simply ask, “How long does the agreement last?” Also ask, “Who decides whether I can continue when it expires?” For prospective franchisees considering Hong Kong, renewal arrangements directly affect the period over which an investment can generate returns. Even if the business is profitable and you have always paid on time, do not assume the franchisor must renew. Before signing the initial agreement, focus on securing clearly defined renewal rights that you can verify and exercise within the required deadlines.

1. Distinguish a Right to Renew from Eligibility to Reapply

Hong Kong has no franchise-specific legislation governing franchise transactions, nor a dedicated statutory franchise disclosure regime, mandatory franchise code or franchise registration system. General business registration and applicable licensing requirements still apply, but completing registration does not mean the government has approved the franchise terms.

Franchise relationships are primarily governed by contract and common law principles. Misrepresentation issues may also fall under the Misrepresentation Ordinance, while arrangements that restrict competition may engage the Competition Ordinance. These general laws do not give franchisees an automatic right to renew. Whether a renewal right exists still depends on the wording of the agreement, its conditions and the particular circumstances.

When reviewing an agreement, distinguish between three arrangements:

• Automatic renewal: The agreement continues unless notice of non-renewal is given in accordance with the specified procedure. Check whether this also automatically commits you to another term.
• A renewal right exercisable by the franchisee: The franchisee can require renewal by giving notice on time and meeting the stated conditions.
• A requirement to reapply: The franchisor retains discretion over approval, so this may not provide a secure right to renew.

“May apply for renewal” is not the same as “has a right to renew”. Wording such as “subject to further agreement between the parties” may also mean that the term, fees and other conditions remain unsettled. Ask a solicitor to confirm what protection the clause actually provides, rather than simply checking whether it mentions renewal.

2. Set Out a Timetable for Applications and Approval

Renewal risks often lie in the notice procedure. An agreement may allow applications only within a specified window. Applying too early or too late, or sending notice to the wrong address, could lead to a dispute over whether you have validly exercised your right.

Before signing, ask for the application window, permitted methods of notice, intended recipient and rules on when notice is deemed received to be specified. If email is permitted, agree a designated address and arrangements for acknowledging receipt. The franchisor should also be required to notify you of any changes to its contact details.

Approval conditions should be as objective as possible. They might cover whether all outstanding payments due have been settled, whether any material breach remains unremedied, and how compliance is to be demonstrated. A requirement that there must “never have been any breach” could make even a minor issue that has already been corrected a point of contention. Consider negotiating a condition focused instead on material breaches that remain unremedied at the time of application, together with procedures for supplying missing documents and putting matters right.

The franchisor should also have a deadline for responding and, if it refuses renewal, should identify the contractual provisions it relies on in writing. Do not assume silence means approval. Any mechanism for dealing with a missed response deadline must be expressly agreed.

Finally, work backwards from lease renewal dates, finance maturity dates and major payment deadlines when setting the application timetable. If the franchisor leaves its decision until the last moment, you could be forced to commit to a new lease before knowing whether you can continue using the brand.

3. Assess the Full Package of Renewal Conditions, Not Just the Fee

Renewal may involve more than paying a renewal fee. The agreement may also require you to sign the franchisor’s then-current agreement, refurbish the premises, upgrade systems or undertake further training. Not every brand imposes these conditions, but you should ask about each one and obtain written answers.

Pay particular attention to any requirement to “sign the then-current standard agreement”. Even if the renewal fee is fixed, the new agreement could change royalties, service fees or other important rights. Ask the franchisor to provide the complete renewal documents before the application deadline, allowing reasonable time for review. The scope of significant changes and the methods used to set charges should also be defined in advance where possible.

Ask the franchisor for a schedule of renewal costs covering at least:

• Application, renewal and documentation fees, including whether they are refundable if the application is rejected;
• Mandatory refurbishment work, acceptance standards and payment dates;
• Potential costs of system upgrades, training and temporary closure during building work;
• The amounts or calculation methods for ongoing charges during the renewed term.

Then assess whether these costs are reasonable in light of the length of the renewed term. If you are offered only a short extension but must undertake extensive refurbishment, consider negotiating a longer renewal term, phased works or a requirement to commit to expenditure only after formal approval. These are matters for commercial negotiation, not protections that the law provides automatically.

4. Agree How the Business Can Operate While Approval Is Pending

An easily overlooked gap arises when the original agreement expires before renewal negotiations are complete. Do not assume that the franchisor’s continued collection of fees or supply of goods means all your existing rights have continued unchanged. The legal effect depends on the actual dealings between the parties and the contractual terms.

When signing the initial agreement, you can agree whether a short-term written extension will be available if you have submitted a complete application on time but approval remains pending. Specify the fees, scope of authorisation and end date that would apply during that period. If there is no such arrangement, obtain clear written consent separately before the original agreement expires.

Plan ahead for notice of non-renewal too. You need enough time to manage the premises, staffing and customer bookings, and to avoid accepting commitments for services that cannot be completed within the authorised term. This is planning for the agreement’s normal expiry and should not be confused with arrangements for early termination.

Practical takeaway: Before signing, prepare a one-page renewal checklist covering who has decision-making authority, when to apply, the conditions to be met, all costs and the final response deadline. If any item depends on further negotiations, treat renewal as uncertain—not as a guaranteed period of trading in your investment plan.