Franchise Renewal: What to Check Before You Buy

When buying a franchise, entrepreneurs usually focus on the launch and the first few months of trading. But if the agreement expires before the investment has paid for itself, the business’s future will depend on the terms offered for the next period. Long-term cooperation matters to both sides in franchising, but relying solely on a good relationship is risky. Before paying anything, establish how the agreement can be renewed, what rights the franchisee has and how much it could cost to keep the outlet operating under the brand.

1. Understand what the law guarantees on renewal

In Russia, arrangements granting a package of exclusive intellectual property rights, including the right to use a trade mark, are specifically governed by Chapter 54 of the Russian Civil Code, entitled ‘Commercial Concession’. General provisions on obligations and contracts, as well as intellectual property rules, also apply. A document’s title does not determine its legal nature: its substance matters more than the words ‘partnership agreement’ on the cover.

Under Article 1035 of the Russian Civil Code, a franchisee who has properly fulfilled their obligations has a preferential right to enter into an agreement for a new term once the existing agreement expires. This is not automatic renewal, nor does it guarantee the same price: the law expressly allows the parties to agree changes to the terms of the new agreement.

If the franchisor refuses renewal to a compliant franchisee but, within a year, enters into a commercial concession agreement with someone else granting the same rights on the same terms, the law provides remedies through the courts. Depending on the circumstances, the franchisee may seek to have the rights and obligations under the new agreement transferred to them, together with damages, or claim damages alone. Whether this provision applies should be assessed with a lawyer; it should not be treated as a promise that the business can continue indefinitely.

Russia has no mandatory standardised pre-contractual franchise disclosure regime. You should therefore request the draft agreement and its renewal rules yourself, before paying any money.

2. Check the term and procedure rather than making assumptions

First, establish the date from which the term runs: signature of the agreement, the grant of rights or another expressly specified event. If setting up the outlet takes up part of that period, your actual trading time may be shorter than expected. Compare the term not only with your projected payback period, but also with the lease term, loan commitments and the useful life of your equipment.

Next, identify which arrangement is provided for:

• automatic renewal unless notice of non-renewal is given in time;
• renewal through a supplementary agreement;
• a new agreement following separate negotiations;
• no contractual procedure, leaving you to rely solely on the law.

Each option requires clear answers. Who initiates negotiations? How far in advance must notice be sent? When must the other party respond? How is receipt of documents confirmed? What happens if negotiations drag on?

Ask for a clause stating ‘renewal by mutual agreement’ to be replaced with a clear sequence of steps. For example, the agreement could set a deadline for submitting a renewal request, list the documents required for review and specify when draft new terms must be sent. These are suggested contractual safeguards, not a procedure required by law.

An arrangement is particularly risky if the franchisee must decide in advance whether to continue but only learns the future cost after the notice deadline has passed. Agree that new terms must be disclosed before your response is due.

3. Calculate the cost of the next term

A preferential right to renew does not remove the need to negotiate fees. Check whether there is a repeat lump-sum franchise fee, a separate renewal fee or a move to the network’s current fee structure. If the agreement is silent, do not assume that the next term will be free: the issue will remain open to negotiation.

Request a comprehensive list of costs arising specifically on renewal. As well as payments to the franchisor, these may include mandatory staff reassessment, repeat training or bringing the outlet up to the standards required for a new agreement. Separate these costs from the outlet’s routine operating expenses.

A useful approach is to draw up a table with four columns: the basis for the charge, how it is calculated, when it is payable and whether the amount can change. Wording such as ‘at the franchisor’s prevailing rates’, without a deadline for providing those rates or a process for agreeing them, leaves your long-term budget uncertain.

Ask for the fee, or a clear method of calculating it, to be agreed in advance. If the franchisor is unwilling to cap the cost, model a separate scenario in which continuing the relationship is no longer commercially viable. Do not treat an unconfirmed renewal period as guaranteed revenue in your payback calculations.

4. Keep evidence and avoid a gap in your rights

Because the preferential right to renew depends on proper performance of your obligations, establish before buying how breaches and remedial action are recorded. Keep evidence of payments, submitted reports and compliance with requirements, along with correspondence about resolving any issues raised. Before the term ends, it is useful to reconcile accounts and request the franchisor’s written position on any outstanding claims.

Do not accept silence as permission to continue trading unless the agreement expressly provides for this in a legally valid way. A manager’s verbal promise is no substitute for formally documenting the continuation of the relationship.

Under Article 1028 of the Russian Civil Code, it is the grant of the right to use the package of exclusive intellectual property rights under a commercial concession agreement that must be registered with Rospatent, Russia’s intellectual property office—not simply the document itself. Extending the term of those rights also requires the appropriate registration formalities. Decide in advance who will submit the documents, pay the official fees and address any issues raised by the authority; plan the process before the current term expires.

Practical takeaway: before buying, obtain written answers to four questions: when does the renewal process begin, what conditions must be met, how much will it cost and who will formalise the extension of rights? If the answers depend entirely on the franchisor’s future decision, assess your investment on the basis of the initial agreement term.