Franchise Contract Renewal in South Korea: Check Your Contract Term and Renewal Rights Before Investing

When choosing a franchise, how long you can operate under the same brand matters just as much as the cost of opening. If the contract expires before you have recovered your fit-out costs, even steady sales may not be enough to keep your business plan on track. Prospective franchisees entering South Korea’s franchise market should assess the initial contract term, statutory renewal rights and changes in costs at renewal separately. In particular, an assurance that “you can carry on as long as there are no problems” is no substitute for specific contractual terms.

1. Distinguish the initial contract term from your right to request renewal

South Korea’s Fair Transactions in Franchise Business Act specifically addresses the renewal of franchise agreements. Under Article 13, if a franchisee requests renewal between 180 and 90 days before the agreement expires, the franchisor may not refuse without justifiable grounds. An extension granted at the franchisor’s discretion is different from exercising a statutory right to request renewal.

However, this right can only be exercised within a total franchise agreement period of no more than 10 years, including the initial term. This does not mean that signing your first agreement automatically guarantees 10 years of trading. You must meet your contractual obligations, and statutory grounds for refusing renewal may apply. Equally, it does not mean you must close after 10 years. Renewal beyond that point requires a separate assessment of the contract terms, any agreement between the parties and other relevant factors.

Review the following points together in the agreement:

• The start and end dates of the initial contract
• How the term is calculated if the signing date differs from the actual opening date
• The length of each renewed term and whether repeated renewals are possible
• Who should receive a renewal request and how it must be submitted
• The procedure that applies once the statutory renewal right no longer covers the agreement

It is sensible to record statutory protections separately from any additional benefits promised in the contract. If the franchisor emphasises the prospect of long-term operation, ask which clause reflects that assurance. Do not base your investment payback period solely on the operating period advertised in a brochure.

2. Link grounds for refusing renewal to your day-to-day obligations

The law also sets out grounds on which renewal may be refused. These may include failing to pay franchise fees or other sums due, or refusing to accept contract terms or operating policies normally applied to other franchisees. Failure to follow important operating policies necessary to maintain the franchise business may also provide grounds for refusal, subject to the statutory requirements.

That does not mean every refusal becomes justified simply because a contract says renewal is “at the franchisor’s discretion”. Do not assume that contractual wording alone can override statutory protections. Where assessment criteria are vague, it is particularly important to establish what evidence will be used to apply them.

Before signing, ask whether the franchisor has a renewal assessment form or a list of evaluation criteria. If these cover matters such as hygiene, quality, payments and completion of training, also ask when assessments take place and what opportunities you will have to make improvements. Check whether a single issue is treated in the same way as repeated serious breaches.

For example, if a clause merely states that “renewal may be restricted where operating performance falls below the required standard”, ask about scoring thresholds and whether you can inspect the assessment records. It also matters whether franchisees can challenge the result or have errors corrected. Before signing, understand your obligations; once trading, keep evidence that you have met them.

If the franchisor refuses a renewal request, it must give written notice stating its reasons within 15 days of receiving the request. A refusal notice does not immediately extinguish all your rights. Keep a record of the date of your request and the notice you receive, and assess whether the reasons given fall within the statutory grounds.

3. Calculate renewal costs alongside your investment payback period

Even if renewal is possible, a substantial change in costs could make continued operation difficult. Look beyond the initial quotation and prepare a separate table of expenses that may arise when the contract term ends. Check whether the following charges or requirements apply, without assuming that every brand imposes the same costs:

• Renewal or re-contracting fees, and how they are calculated
• Conditions for refunding, carrying forward or topping up deposits
• Changes to ongoing charges, such as royalties, after renewal
• Extension costs for equipment or IT services covered by separate contracts
• Investment in premises or equipment required at renewal, and the criteria applied

For each cost, record not only the amount but also when it is payable, whether it is refundable and the document supporting it. “We do not currently charge this” is different from a commitment that “we will not charge this at your renewal”. If an amount has not yet been set, at least establish how it will be determined and how much advance notice you will receive.

If replacing fixtures or equipment is made a condition of renewal, do not assume that calling it a renewal cost makes the requirement lawful or means the franchisee must bear the full expense. Depending on what is actually required, a separate assessment may be needed under provisions governing improvements to franchise premises or other relevant rules.

Prepare separate investment plans for operating only during the initial term and for continuing after renewal. If recovering your investment depends on renewal, committing to expenditure while the renewal conditions remain unclear is risky. The key is not to treat an unverified prospect of long-term trading as guaranteed income.

4. Plan ahead for lease dates and evidence of your renewal request

Even if your franchise agreement is renewed, your business may be disrupted if you can no longer use the premises. The franchise agreement and the premises lease are separate contracts, each with its own renewal requirements and scope of protection. The franchisor’s approval of renewal does not replace the landlord’s agreement to extend the lease.

Before signing, compare the start dates, end dates and renewal notice deadlines for both contracts side by side. If the lease expires first, establish whether you will be able to remain in the premises. If the franchise agreement expires first, you could still owe rent during a period when you cannot use the brand. Do not dismiss a mismatch in dates as a minor administrative matter.

It is also worth planning how you will submit your renewal request. Do not rely solely on a telephone call to your contact at the franchisor: use a method that allows you to establish what you requested and when it was received. In practice, this means checking the recipient and address specified in the agreement, and retaining copies of what you send alongside proof of receipt.

Even where there is an automatic renewal clause, simply waiting without taking action is not always safe. Statutory provisions on deemed renewal and contractual conditions for automatic extension need to be assessed in light of the notices actually exchanged. Mark the statutory request window in your calendar when you sign the agreement, and prepare well in advance.

Practical takeaway: Before signing, summarise five points on one page: the initial contract expiry date, the renewal request window, grounds for refusal, renewal costs and the lease expiry date. If you cannot establish all five, you have not yet confirmed whether long-term operation is viable.