Planning Franchise Agreement Renewals in Indonesia

When preparing a business for franchising, owners tend to focus more on opening outlets than on continuing the relationship. Yet renewal terms determine whether franchisees can plan their investment realistically. Clear rules from the outset help both parties maintain their relationship without making contract renewal an unwelcome surprise. This guide explains how to design a renewal process before recruiting your first franchisee.

1. Distinguish the contract term from the right to renew

The main legal framework for franchising in Indonesia is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It governs franchise operations, including the franchise offering prospectus, franchise agreement and Franchise Registration Certificate, known locally as the STPW. Renewal procedures are among the matters that must be addressed in a franchise agreement.

However, specifying a contract term does not in itself grant an automatic right to renew. The agreement needs to explain whether the franchisee has an option to renew once specified conditions are met, or whether renewal requires both parties’ written consent.

When drafting the initial contract, establish:

• when the agreement begins and ends;
• when a renewal application must be submitted;
• how long the franchisor has to respond;
• how long the next term will last;
• which document will confirm approval of the renewal.

Avoid wording such as “may be renewed at head office’s discretion” without setting out a procedure. This gives franchisees no basis for planning leases, staffing or equipment purchases. The deadlines and procedures you set are contractual arrangements, not standard periods that can be presented as legal requirements.

2. Set conditions that can be verified

Renewal should be based on criteria known from the outset, rather than personal judgements about the franchisee. Use evidence already available during the relationship: payment records, compliance with reporting obligations, resolution of breaches that have been formally notified, and whether all required business permits for the outlet are in place.

Distinguish shortcomings that can still be remedied from circumstances that make renewal inappropriate. For example, late submission of documents calls for a different response from use of the brand beyond the rights granted. Do not treat every shortcoming as an equally serious ground for refusal.

Prepare a dedicated renewal assessment sheet with four columns: requirement, evidence, compliance status and action required. Give the franchisee a summary so they can understand the decision and address any shortcomings.

If sales performance is a condition, explain how it is measured and which factors are taken into account. Avoid introducing new targets shortly before the contract expires, particularly where those targets were not previously part of the franchisee’s obligations.

Provide an internal review process as well. Franchisees need to know whom to contact to request a correction if payment records or compliance assessments are inaccurate. This is a recommended governance measure, not a substitute for the legal mechanisms set out in the agreement.

3. Disclose fees and upgrade obligations from the outset

Renewal may involve additional costs, but do not assume that every expense falls under a single “renewal fee”. Distinguish the payment for securing the next franchise term from expenditure on refurbishment, equipment replacement, refresher training or point-of-sale system upgrades.

For each component, explain who pays, how the amount is determined, when payment is due and whether the cost remains payable if renewal is not agreed. If an amount cannot be fixed in the initial contract, provide a clear mechanism for determining it rather than leaving it to unrestricted discretion.

Outlet upgrades should also take account of the remaining useful life of assets. Equipment that is still fit for purpose should not automatically be replaced simply because the contract is entering a new term. Explain the operational needs or brand standards behind any changes, along with the implementation stages.

For example, if the outlet design changes, provide a list of mandatory and optional work. Also distinguish work that must be completed before the renewal takes effect from work that can be carried out in stages. This clarity helps franchisees calculate their capital requirements without obscuring their contractual obligations.

4. Follow a decision timetable and check the documents

Create an internal timetable that starts well before the contract expires. The sequence might include notification, the franchisee’s application, a compliance review, communication of the outcome, discussion of changes and, finally, signing. Allow enough time for refurbishment and take the premises’ lease term into account.

Do not allow an outlet to continue operating after the contract expires solely on the basis of informal conversations. If the renewal process is not complete, ask a legal adviser to prepare appropriate written arrangements, including a time limit and the rights to use the brand during that period.

Before signing, check that the new agreement is consistent with the offering information, fee schedules and outlet upgrade obligations. Also check whether STPW details or documents need updating under the applicable procedures; do not assume that renewing the contract automatically updates the administrative records.

Make sure the signatories still have authority to sign and that the right to occupy the premises supports the planned next term. Keep decisions, evidence of delivery and agreed documents together in a single file for each franchisee.

Practical step: before offering your first franchise, prepare a one-page renewal workflow covering deadlines, conditions, costs, responsibilities and final documentation. Use it to test whether the contract clauses can actually be put into practice.