Renewing a Franchise in Hong Kong: Agree Terms, Fees and Refurbishment Responsibilities Before Signing

When buying a franchise in Hong Kong, many investors focus on whether the initial contract term is long enough to recoup their investment, overlooking whether they can continue trading afterwards. Clear renewal arrangements help both franchisors and franchisees plan investment and support in advance. Before signing your first agreement, treat renewal as a right to verify, negotiate and cost—not a benefit that automatically follows from a good relationship with the brand.

1. Distinguish a right to renew from permission to apply

“The franchisee may apply for renewal” usually means only that you can submit a request, not that the brand must approve it. “Subject to further agreement between the parties” also means renewal remains open to negotiation. A more certain arrangement expressly requires the brand to renew on agreed terms once the franchisee meets specified conditions and gives notice on time.

When reviewing the draft, check each of the following:

• Renewal length and number of renewals: How long is each renewal term? Can the right be exercised only once, or repeatedly?
• Application procedure: Within what period must notice be received? Which address should it be sent to? Is email valid?
• Eligibility conditions: Must you have no outstanding payments, meet performance targets or complete training?
• The brand’s response: By when must the brand confirm that the application is complete and approve or reject it?

Watch for broad wording such as “to the brand’s satisfaction” or “meeting all requirements in force at the time”. Seek verifiable standards and a period to remedy minor breaches, so that an administrative oversight you have already corrected cannot still be used to refuse renewal. Do not assume silence means approval, either: the agreement should specify what happens if the brand misses its response deadline.

2. Hong Kong has no specific statutory right to franchise renewal

Hong Kong currently has no franchise-specific legislation, nor a generally applicable statutory franchise disclosure document regime, franchise registration scheme or mandatory franchise code of conduct. Ordinary business registration does not mean the government has approved a franchise scheme. Nor does a franchisee automatically acquire a statutory right to renew simply by trading for many years, building a customer base or paying fees on time.

Renewal rights depend mainly on the agreement and common law principles of contract. If the brand makes a false statement before signing that induces you to enter into the agreement, common law and the Misrepresentation Ordinance (Cap. 284) may apply. Whether you have a claim, and what remedies may be available, will depend on the evidence. The Competition Ordinance (Cap. 619) may also apply to restrictive arrangements attached to renewal. The absence of franchise-specific legislation does not mean all restrictions are unregulated.

If a franchise sales representative says “we never refuse renewal” or “renewal only involves an administration fee”, ask for those promises to be included in the formal documents. Past practice is not a future contractual obligation, and disclosure documents used by an overseas head office do not necessarily give Hong Kong franchisees the same protections.

Before signing, you can ask the brand for its current renewal policy, a sample renewal agreement and anonymised reasons for previous renewal refusals. This information can help you assess the risks, but any protection you need to rely on should still be incorporated into the signed agreement.

3. Budget for renewal fees and compulsory refurbishment together

Renewal costs may extend well beyond a single fee. The brand may require replacement equipment, refurbishment, an updated point-of-sale system or further training. You may also have to close during the works while continuing to pay rent and some staffing costs.

First, ask the brand to list all renewal-related charges and how they are calculated, then build a budget using the following checklist:

Cost item	Questions to clarify before signing
Renewal fee	Is it a fixed sum, calculated as a percentage, or left for the brand to decide later?
Ongoing charges	Can royalties and system fees be reset at renewal?
Fit-out and equipment	Which items must be replaced? Can recently completed work qualify for an exemption?
Costs during closure	Which brand charges can be suspended or reduced while work takes place?
Professional fees	Must you pay the brand’s legal or audit fees? Is there a cap?

Seek a commitment that the brand will provide the scope of works and the basis for its cost estimates before the renewal decision. Agree mechanisms such as fee caps, phased works or exemptions for recent refurbishments. These are negotiable arrangements, not statutory rights.

Focus your assessment on whether the additional investment required for renewal can be recovered during the new contract term, rather than deciding to continue simply because you have already invested heavily. If you need a loan to fund refurbishment, test whether you could still make repayments during closure, a delayed reopening or a fall in revenue. Do not assume a bank will necessarily provide finance.

4. Prevent renewal from becoming an unrestricted rewrite of the agreement

Some agreements require you to sign the brand’s “then-current standard agreement” on renewal. This may weaken existing protections. Even if the renewal fee is modest, higher ongoing charges or changed operating requirements could affect the business’s viability.

Ask the brand to provide the new version and a comparison showing the changes well in advance, allowing enough time for a solicitor to review them. Seek to specify which core terms will carry over, which may change and the permitted scope of those changes. Do not settle for “we will discuss it nearer the time”. If the brand requires you to waive all existing claims, assess that requirement separately so that renewing does not also mean giving up unresolved rights.

Renewal arrangements must also align with the lease for your premises. The brand’s approval does not mean the landlord will renew the lease, and a lease extension does not automatically extend your franchise rights. Put the notice deadlines for both agreements on a single timetable, and seek a written decision from the brand before committing to long-term rent or refurbishment works. If you must pay first, specify the refund or cancellation arrangements that will apply if renewal does not go ahead.

Practical takeaway: Before signing your first agreement, prepare a one-page renewal checklist covering application dates, approval conditions, all additional costs and the scope for changes in the new agreement. Have a Hong Kong solicitor review any promise that could affect your ability to continue trading, and ensure it is reflected in written contractual terms.