Buying a Franchise in India: Check Your Renewal Rights

When buying a franchise, it is natural to focus on the initial investment and opening the outlet. But an equally important question is: what happens when the current agreement expires? Running a successful outlet does not automatically entitle you to another term. When planning a long-term franchise investment in India, assess renewal in terms of clear contractual rights, conditions and costs, rather than verbal assurances.

1. A renewal right is not the same as a possibility

There can be a practical difference between an agreement stating that it “may be renewed” and one stating that “the franchisee may exercise an option to renew upon meeting specified conditions”. The first wording may leave the decision entirely to the franchisor’s discretion; the second may provide a more definite right. The meaning can only be understood by reading the agreement as a whole.

Before signing, obtain written answers to these questions:

• From which date does the initial term run: signing, the grant of franchise rights or opening?
• How many renewals are available, and how long is each renewal term?
• Must renewal be approved if the eligibility requirements are met, or can the franchisor still refuse?
• Will renewal apply only to the same location and business format?
• Can the brand reject an application because it has decided not to continue operating at that location?

A sales presentation promising a “long-term partnership” is not enough. If your investment depends on an assurance, have it included in the signed agreement.

2. Make eligibility requirements measurable

Proposed renewal conditions may include having no outstanding payments, complying with standards and maintaining the necessary licences and approvals. Problems arise when phrases such as “satisfactory performance” or “operation in line with brand expectations” have no clearly defined basis.

Ask which period’s records will be used to assess performance and who will carry out the assessment. Could a shortcoming that has already been corrected still prevent renewal? If there is a genuine payment dispute, will the disputed amount automatically be treated as overdue? The distinction between a minor shortcoming and a serious breach should also be clear.

Negotiate three useful safeguards in the agreement: written details of any shortcomings, an opportunity to remedy them where appropriate, and written confirmation that the eligibility requirements have been met. These are not statutory rights that arise automatically in every case; they need to be clearly agreed.

Ask existing franchisees how renewal worked in practice. If possible, review approval letters and fee breakdowns with personal information removed. Their experience can offer useful pointers, but it does not guarantee what will happen under your separate agreement.

3. Understand the full cost of renewal in advance

Asking only about the renewal fee gives an incomplete picture. Request an itemised list of application or assessment fees, the cost of preparing a new agreement, additional deposits and any other mandatory renewal-related costs. For each item, have the payment date, applicable taxes and refund position if the application is rejected recorded in writing.

If the fee will be based on the rate prevailing at the time of renewal, ask how it will be calculated, how much notice you will receive and whether any cap will be agreed. Do not treat a verbal estimate given today as a fixed future cost.

One important question is whether renewal will require you to accept the franchisor’s standard agreement in force at that time. This could change fees, support, operational obligations or other rights. Ask for the current template, but recognise that it does not guarantee the content of the future document. Agree sufficient time to review the proposed new agreement and obtain independent advice.

In your financial planning, assess the guaranteed initial term separately. If recovering your investment depends on a further term but renewal is discretionary, test that risk in alternative projections with lower profits or higher costs.

4. Set a timeline from application to final decision

Extract all the relevant dates from the agreement and create a shared calendar: the application deadline, the period for submitting documents, the assessment, the time allowed to remedy shortcomings and the deadline for a decision. Submitting an application and receiving approval are separate events.

Ask what happens when the current term expires if you applied on time but the decision is delayed. Is a temporary extension possible in writing? Which fees and operating terms would apply during that period? Do not treat the franchisor’s silence as approval or plan to continue using the brand without written authorisation.

Check that the premises will also remain available. Renewal of the franchise does not automatically extend the lease. Review the dates and dependencies of both arrangements before committing to expenditure for the next term.

5. Understand the legal framework in India

India has no dedicated national franchise law, no general requirement for a franchise-specific pre-sale disclosure document, and no franchise-specific government registration system. General business registrations and approvals are separate matters. The law does not prescribe a uniform minimum or maximum term for franchise agreements; the term and renewal arrangements depend primarily on what the parties agree.

The Indian Contract Act, 1872 provides the main framework for contract formation, free consent, performance, breach and remedies. Rules on fraud and misrepresentation also apply. If you were induced to enter into an agreement by false assurances about renewal, the available remedies would depend on the facts, evidence and applicable provisions. Neither an extension nor compensation is automatic. Other applicable general laws also remain relevant.

Practical takeaway: Before paying, get the renewal right, eligibility requirements, full costs and decision timeline in writing. Do not base your investment recovery calculations on a further term that is not guaranteed.