Buying a franchise: check the renewal terms

When buying a franchise, it is easy to focus on opening and overlook what will happen when the agreement expires. Yet an outlet building a loyal customer base also needs a reasonably predictable future. Long-term cooperation is a shared goal in franchising, but it is not automatically a guaranteed contractual right. Before making your initial investment, check whether you can renew the agreement, on what terms and when you will receive a final decision.

1. Distinguish an opportunity to discuss renewal from a right to renew

Franchise agreements often run for a fixed term. A clause stating that the parties will ‘agree on continued cooperation’ before expiry does not give you the same protection as an explicit right for the franchisee to renew if specified conditions are met.

Check the draft agreement to establish which arrangement actually applies:

• Automatic renewal: the agreement continues unless either party gives notice to the contrary within the required timeframe.
• Renewal on request: the franchisee must submit a request by a specified deadline and meet the agreed conditions.
• A new agreement by mutual consent: continuation depends on both parties reaching a new agreement.

Even with automatic renewal, check the exceptions and any grounds for refusal. For renewal on request, ask whether the franchisor can refuse despite all conditions being met. The wording ‘at the franchisor’s sole discretion’ offers a different level of predictability from criteria defined in advance.

A verbal assurance that ‘we always keep good partners’ should not replace a contractual provision. Also ask how long the renewed term will last and whether there is a limit on the number of renewals.

2. Understand what Slovenian law provides

Slovenia has no dedicated franchising act, mandatory franchise register or specific statutory disclosure document for franchise purchases. A franchise agreement is an innominate contract, meaning it is not a separately defined contract type under Slovenian law. It is governed by general contract law, principally the Slovenian Obligations Code (OZ). Depending on the nature of the relationship, other rules, such as competition law, also apply.

Among other things, the OZ establishes the principle of good faith and fair dealing, alongside rules on entering into, performing and breaching contracts. However, you should not infer from these rules that successful trading automatically entitles you to a further contractual term. The specific agreement and the circumstances of the relationship are central to any assessment.

A franchisor’s membership of an association is likewise no substitute for a clear renewal clause. Any code of conduct is not a dedicated Slovenian law: you need to check whom it binds and whether its provisions form part of the contractual relationship.

Before signing, have a lawyer examine, in particular, the distinction between expiry, renewal and entering into a new agreement. If the agreement specifies foreign law or dispute resolution abroad, ask the lawyer to explain how those clauses affect your ability to enforce your rights.

3. Make conditions measurable and deadlines workable

A requirement to comply with standards is understandable, but it must be clear how compliance is assessed. Without further explanation, terms such as ‘satisfactory performance’ or ‘an appropriate attitude towards the brand’ leave considerable room for differing interpretations.

Propose setting out the conditions in writing: payment of all sums due, completion of required training, compliance with predefined standards and remedying any identified breaches. For each condition, check which period will be assessed, what evidence will be accepted and who will make the decision.

It is also important to distinguish a minor, remediable failing from a serious breach. Negotiate written notice of any shortcomings and a reasonable period to remedy them before they become grounds for refusing renewal. It is sensible to agree this expressly; do not assume it applies in every case.

Draw up a simple calendar with four milestones:

1. the deadline for submitting the renewal request;
2. the deadline for providing supporting evidence;
3. the deadline by which the franchisor must respond;
4. the date for signing the renewal or new agreement.

Also specify how notices must be served and to whom. If the response arrives only shortly before expiry, it is difficult to plan staffing, orders and financing responsibly. Insist on a decision early enough to meet your outlet’s practical business needs.

4. Check the terms on which you will continue

A right to renew is less useful if it obliges you to accept an unknown future agreement. Pay particular attention to any clause requiring you to sign the franchisor’s ‘then-current standard agreement’. This may contain different fees, obligations or allocations of risk.

Ask which provisions will remain unchanged, which may change and when you will receive the new wording. Also agree any renewal fee or the method for calculating it. Do not rely solely on current practice if the agreement allows a different arrangement.

With your accountant, compare the initial contractual term with the time needed to recoup your investment. Do not base your core financial calculations on a renewal that depends on future consent. Then check that the franchise term aligns with your lease and financing arrangements: a renewed franchise without the right to use the premises does not guarantee that you can keep trading.

Practical takeaway: before buying, require clear answers to three questions: do you have a right to renew, when will you receive the decision, and on what terms will you continue? Those answers should be written into the agreement, not merely presented at a meeting.