Renewing a franchise agreement: set the rules before you launch

When turning an established business into a franchise, it is easy to focus on the first opening and the initial franchise fee. Yet prospective franchisees also need to know on what terms they can continue the relationship once their agreement expires. A clear renewal process helps franchisees plan investment, staffing and commitments to their landlord. It is worth putting that process in place before signing the first agreement, rather than waiting until it is nearing its end.

1. Choose how the relationship will continue

First, decide what “renewal” means in your model. There are several options: automatic renewal unless either party gives the required notice; renewal at the franchisee’s request once specified conditions have been met; or a new agreement entered into by mutual consent. These arrangements are not interchangeable.

The right to apply for renewal is not the same as the right to renew the agreement. If the franchisor retains discretion to refuse, the documents should not suggest that continuation is guaranteed. If, on the other hand, the franchisee is entitled to renewal once the conditions are met, both those conditions and the franchisor’s obligation must be precisely defined.

Poland has no separate statute comprehensively regulating franchising. Under Polish law, a franchise agreement is an “unnamed contract”: one without its own specifically defined statutory category. It is governed primarily by the Civil Code, including the principle of freedom of contract under Article 353¹. That freedom is subject to limits arising from legislation, the nature of the legal relationship and the principles of social coexistence. The Act on Competition and Consumer Protection also matters, as do EU competition rules, depending on the agreement’s provisions. The use of trade marks is also governed by Poland’s Industrial Property Law.

There is no specific statutory franchise register or general requirement to provide a statutory franchise disclosure document. Proposals for such regulations are not law. Nor is there a general statutory right for franchisees to renew their agreements. The mechanism for continuing the relationship therefore needs to be deliberately built into the contract.

2. Align decision deadlines with real commitments

Do not copy an application deadline from an arbitrary template. First, check when the franchisee will need to decide whether to renew the lease, extend equipment finance or order fixtures and fittings. The decision on continuing the franchise should come early enough for them to make those commitments on an informed basis.

Prepare a timetable covering:

• a reminder that the contractual term is nearing its end;
• the application deadline and a list of required documents;
• the deadline for presenting the terms of the continuing relationship;
• time to clarify concerns and remedy breaches that can be put right;
• the final deadline for a decision and for signing the documents.

Also specify how the application must be delivered and who is responsible for handling it. A clause simply stating that “the franchisee should contact head office” does not establish whether the procedure has been validly initiated.

Set out the consequences of failing to respond. Silence should not leave either party uncertain about whether the relationship has been renewed. Also explain whether a late application can be considered and, if so, under what procedure. It is worth testing the process against one of your own outlets, comparing it with the deadlines for its lease and investment commitments.

3. Set verifiable renewal conditions and costs

The conditions for continuing should relate to matters that genuinely affect the shared brand. They might include meeting payment obligations, complying with standards, retaining the right to occupy the premises or remedying documented breaches. Do not replace these with a general requirement for the “franchisor’s complete satisfaction”.

For each criterion, specify the source of information, the period to be assessed and the opportunity to provide explanations. Distinguish a serious breach from a one-off mistake that has been corrected. If an ongoing invoice dispute could affect the decision, explain how it will be taken into account rather than automatically treating every disputed amount as grounds for refusal.

Investment requirements need particular attention. A franchisee may be told that renewal depends on a refurbishment, replacement of the point-of-sale system or changes to the décor. However, they should receive the scope of the changes and information about costs before making their decision, not after a lease deadline has effectively forced their hand.

Prepare a breakdown showing:

• which changes are compulsory and which are recommended;
• who bears each cost;
• when the work must be completed;
• whether trading will need to stop temporarily;
• what further term of the relationship is intended to justify the investment.

If you plan to charge a renewal fee, distinguish it from the initial franchise fee. Explain what it covers and how it will be calculated. Avoid imposing an open-ended obligation on the franchisee to accept future costs they cannot estimate.

4. Highlight the differences between the old and new agreements

Renewal may mean continuing on revised terms. If you intend to use your then-current standard agreement, make that clear from the outset. At renewal, give the franchisee not just the full document but also a clear summary of changes to fees, the scope of support, investment obligations and the rules for using the brand.

Do not assume that signing a new document automatically settles all outstanding matters under the previous agreement. Specify what happens to outstanding amounts, security arrangements and previously agreed obligations. Also check that trade mark rights continue without interruption and that the term of the relationship is consistent with the documents relating to the premises.

Have the documents reviewed by a lawyer familiar with franchise agreements. It is particularly important that promises made to prospective franchisees match the actual renewal mechanism.

Practical takeaway: before recruiting your first franchisee, prepare a one-page renewal timetable and a list of the conditions and costs. Then check that the agreement genuinely provides the procedure you are describing to your prospective franchisee.