Franchise Renewals and New Contracts in Japan: What to Check Before Joining
Even if you plan to trade for many years, renewal on the same terms is not guaranteed. This practical guide explains the renewal assessments, costs, changes to terms and notice deadlines to check before joining a franchise in Japan.
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When considering a franchise, it is important to check not only whether you can open the business, but also whether you can keep trading after the agreement expires. Even if you build a strong local customer base, unclear renewal terms could prevent you from carrying that success into the next contract period. To grow a business over the long term as part of a franchise network, establish in writing the conditions for continuing before you join.
1. Distinguish between automatic renewal, renewal by agreement and a new contract
A recruitment representative may tell you that agreements can ‘normally be renewed’, but that alone does not establish a right to renewal. Start by reading the clauses on the contract term, renewal and notices together, so you understand what happens when the agreement expires.
- Automatic renewal: The agreement continues unless notice of non-renewal or another specified notice is given by a set deadline. However, the renewed term and conditions may not be the same.
- Renewal by agreement: Both the franchisor and franchisee must agree. Submitting an application does not guarantee renewal.
- A new contract: The current agreement expires and a fresh agreement is signed. You may be offered a new contract form or fee structure.
These categories help you understand the agreement; the labels alone do not determine their legal effect. Even a clause headed ‘Renewal’ may require you to sign a new agreement specified by the franchisor.
Check the deadline for applying, the franchisor’s deadline for responding, the documents required, the permitted methods of giving notice and the length of the renewed term. Also establish whether a notice is treated as given on the date it is sent or the date it is received, and whether email is valid. If a verbal explanation differs from the agreement, ask for written clarification that resolves the discrepancy before signing.
Next, compare the term of the franchise agreement with the lease for your premises. Renewing the franchise agreement alone will not ensure business continuity if you cannot keep using the premises. Before joining, you should also identify any mismatch with your loan repayment schedule or the planned useful life of your equipment.
2. Turn renewal assessments into criteria you can evaluate
If a brand carries out a renewal assessment, establish what it assesses and how it reaches its decision. Vague wording such as ‘where the franchisor considers it appropriate’ does not tell you what requirements you need to meet.
Specific questions such as the following make it easier to compare responses.
| Point to check | Example question |
|---|---|
| Assessment scope | Which factors do you assess: sales, payment history, hygiene management or compliance with operating standards? |
| Assessment period | Do you consider recent performance or the entire contract period? |
| Opportunity to improve | If there are shortcomings, will you set out the required corrective action and deadline in writing? |
| Decision-making process | Who conducts the assessment, and when will you communicate the outcome and reasons? |
| Review | Is there a point of contact for requesting a review if the assessment contains factual errors? |
Where numerical criteria apply, check how they are calculated. If sales performance is used, for example, it matters how periods of closure or the effects of relocation are treated. If criteria can change during the contract term, also ask when the changes take effect and how advance notice will be given.
When speaking to existing franchisees, ask not only whether they secured renewal, but also about the process from application to response, requests for additional documents and any guidance on improvements. Their individual experiences do not guarantee your own renewal, but they can reveal differences between the stated process and actual practice.
When the franchisor describes its renewal history, distinguish cases where franchisees chose not to renew from those where the franchisor refused renewal. Grouping cases with different circumstances together could give you a misleading impression of how easy it is to continue.
3. Include renewal costs and changes to terms in your business plan
Even if the renewal fee is low, changes to monthly charges under a new agreement can significantly affect future profits. Your financial projections before joining should cover not just the initial contract term, but also expenditure at renewal and fixed costs afterwards.
Check renewal fees, new-contract fees, assessment fees, additional security deposits and compulsory training costs. For each, list the amount or calculation method, payment date, treatment of Japanese consumption tax and refund conditions. If you must make a payment when applying for renewal, establish whether it will be refunded if your application is rejected or you cannot agree to the terms offered.
Ask the franchisor for more than the current agreement: request the documents you are expected to sign at renewal and the rules that will apply then. If future terms have not yet been decided, treat that uncertainty itself as a factor in your decision. An assurance that ‘we will discuss it at the time’ is not a promise to preserve the current terms.
Pay particular attention to these three points.
- What can change: Identify which provisions may change, including fees, operating obligations and the scope of any guarantees.
- When you will be told: Check whether new terms will be presented early enough for you to consider them properly.
- What happens if you cannot agree: Establish whether you can continue on the existing terms or whether the agreement will expire.
In your financial planning, distinguish between a business that can recover its investment within the initial contract term and one that needs renewal to do so. If the plan is viable only on the assumption of renewal, you need to examine the likelihood of renewal and the impact of changed terms more carefully. If future costs are unknown, try to negotiate a contractual cap or an agreed calculation method.
4. Record your findings in writing, taking Japanese rules into account
Japan has no single, comprehensive law dedicated to regulating all franchises. However, Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors falling within the Act’s definition of a ‘specified chain business’ to provide prospective franchisees with written disclosures and an explanation before an agreement is concluded. The contract term, renewal conditions and provisions on termination are important disclosure items to check.
Not every retail or food-service brand falls within this scope. Coverage depends on statutory requirements relating to matters such as ongoing supplies of goods or arrangements for their sale, management guidance, the use of trade marks and the collection of payments on joining. Falling outside the scope does not mean there is no need to check renewal terms.
The Japan Fair Trade Commission’s Guidelines Concerning the Franchise System under the Antimonopoly Act also identify matters that should ideally be disclosed before signing, including the contract term and the conditions and procedures for renewal, termination and early termination. These guidelines are not limited to retail and food service, but it is important to distinguish the statutory obligation to provide written disclosures from the disclosures recommended by the guidelines.
A franchisee is an independent business, separate from the franchisor, and transactions between them are subject to Japan’s Antimonopoly Act. Making renewal conditional on accepting unjustifiably disadvantageous terms could, depending on the parties’ bargaining positions and the specific circumstances, raise issues such as abuse of a superior bargaining position. However, not every change to terms or refusal to renew is unlawful.
General laws, including the Civil Code, also govern the interpretation and performance of contracts. It is risky to assume that operating for many years automatically entitles you to renewal. If you have concerns about the validity of a refusal to renew or a change to terms, gather the agreement, disclosure documents and explanatory emails, and consult a lawyer familiar with franchise agreements in Japan.
Practical summary: Before choosing a brand, prepare a one-page summary covering application deadlines, assessment criteria, costs, changes to terms and response deadlines. Do not fill gaps with verbal reassurances. Distinguishing conditions confirmed in writing from unresolved risks will help you choose a franchise that can support a long-term business.
