Renewing a franchise agreement: set the rules before your first expansion

When preparing an existing business for its first franchise, the end of the initial contract term can seem a long way off. Yet the rules for continuing the relationship influence the very first investment: your partner needs to know how long they are committing for and on what terms they can remain in the franchise network. Set out the renewal arrangements before making your first offer, rather than just before the agreement expires.

1. Distinguish the contract term from the right to renew

A fixed-term agreement is not the same as a guaranteed option to renew it. Specifying only the initial term does not explain whether the franchisee has a right to continue the relationship, whether they need your consent or which conditions they must meet.

Slovenia has no dedicated franchising act, mandatory franchise register or specific statutory disclosure document. A franchise agreement is an innominate contract, meaning it is not a separately defined contract type, and is governed by the general rules of the Slovenian Obligations Code, including the principle of good faith and fair dealing. Freedom of contract is not unlimited: an agreement must not conflict with mandatory legal provisions or moral principles.

The parties can agree to renew by mutual consent. As franchise agreements usually also contain licensing elements for which written form is required, put the renewal in writing. When drafting it, also consider the applicable competition rules where new provisions affect competitive relationships.

Choose a clear arrangement for your model:

• automatic renewal unless either party gives notice otherwise within the required timeframe;
• an option to renew at the franchisee’s request, subject to predefined conditions;
• renewal only through a new agreement between both parties.

These are different contractual options, not statutory default rights. Have a lawyer tailor the wording to your chosen option and the rest of the agreement.

2. Make the conditions verifiable

A clause stating that you will renew the agreement “subject to satisfactory cooperation” leaves too much room for differing interpretations. Before your first expansion, define what you will assess, on which date and using what evidence.

Conditions might include payment of all overdue amounts, a valid right to occupy the business premises and the remedying of any identified material breaches of contract. For each condition, distinguish minor shortcomings from problems that genuinely threaten the continuing relationship. Also specify how you will handle payment claims whose validity or amount the partner disputes on reasonable grounds.

It is sensible to set out a notification procedure and an opportunity to remedy shortcomings where feasible. This gives the franchisee a specific list of outstanding issues before the decision, rather than just a general assessment that they do not meet the conditions.

Explain the conditions at the start of the relationship. Adding new requirements shortly before expiry makes the process less predictable. If you want renewal to depend on signing the version of the agreement in force at that time, explain what this means and establish a procedure for providing the new wording in good time. Do not assume you can unilaterally change existing obligations simply because renewal is approaching.

3. Align investment requirements with the new contract term

The most difficult discussions are often not about renewal itself, but about refurbishing premises, replacing equipment or introducing new technology. For the franchisor, an upgrade may be important to a consistent brand image; for the partner, it represents a new financial commitment.

Decide in advance how you will present the required investment to your partner and when they will receive enough information to make a decision. The proposal should include the scope of the changes, the expected implementation timetable, responsibility for costs and the operational impact of any temporary closure of the outlet. Clearly distinguish cost estimates from binding quotations from contractors.

With an accountant, review the relationship between the required investment and the proposed renewal term. This is not a promise that the investment will be recouped, but a check that the proposal also makes commercial sense for an independent partner. Take account of the lease term and the useful life of existing equipment too.

If you intend to charge a separate renewal fee, its basis should be clear from the initial agreement. Distinguish it from refurbishment costs and other payments. Renewal should not be the point at which your partner first learns of an additional compulsory payment.

4. Prepare a decision timetable and written confirmation

Plan the process backwards from the expiry date. Allow time for the partner’s request, assessment of the conditions, remedying shortcomings, negotiations over any changes and signing. Set deadlines according to the complexity of the business, rather than relying on instinct.

The agreement should explain who sends notices, to which address and how receipt is proved. Specify the consequences of a late request or silence from the other party; without a clear agreement, do not treat silence as reliable confirmation of renewal.

For each renewal, prepare a summary of the agreed terms: the new term, applicable fees, investment obligations, deadlines and a list of documents that remain in force. Also check that the right to use the trade mark covers the whole of the new term. A verbal agreement or continued invoicing is no substitute for clear written arrangements.

Practical takeaway: before launching your first franchise, prepare the renewal conditions, a decision timetable and a template written agreement. This makes continued membership of the franchise network a predictable business step, rather than a negotiation under time pressure.