Franchise Renewal Terms in Taiwan: Check Renewal Rights, Refurbishment Costs and New Contracts Before Investing

When choosing a franchise in Taiwan, many prospective franchisees focus on the initial terms and overlook whether they will be able to continue trading once the agreement expires. Clear renewal arrangements support a lasting relationship between franchisor and franchisee. For investors, renewal also directly affects equipment lifespans, financial planning and the value of the business. This guide explains how to clarify future renewal conditions before signing your first agreement.

1. Distinguish between permission to apply and a right to renew

“May apply for renewal on expiry” usually means only that you can submit an application, not that the franchisor must accept it. “Priority for renewal on equal terms” does not necessarily guarantee that existing fees will remain unchanged either. When reading the agreement, break renewal rights down into three questions: who decides, on what grounds, and by when?

Ask the franchisor to confirm each of the following in writing:

• Application window: What are the earliest and latest dates for applying? Is email valid, and who should receive the application?
• Eligibility criteria: Must you have no outstanding payments, pass inspections or complete specified training?
• Opportunity to remedy breaches: Can minor breaches be corrected within a set period, rather than leading directly to disqualification?
• Response deadline: By when must the franchisor approve the application or give reasons for refusing it? What happens if there is no response?

“Subject to the franchisor’s requirements” is too vague. Ask for the assessment checklist, the period being assessed and the review procedure to be attached. If eligibility depends on inspection scores, for example, establish which version of the assessment applies, who awards the scores and how the application will be handled while a dispute is unresolved. Do not assume that silence means approval.

2. Budget for renewal charges and refurbishment together

The renewal fee is only one expense. The franchisor may require new signage, refurbishment, replacement equipment, or further training fees and security deposits. Request a schedule of costs specifically applicable to renewal, rather than relying solely on the investment breakdown for a new outlet.

Draw up a renewal budget that separately identifies who receives each payment, the basis for the charge, when it is payable and whether the amount is fixed. For costs that remain uncertain, seek a calculation formula, a price cap or a procedure for obtaining a quotation in advance. Also confirm whether the existing security deposit will carry over, be credited against the new requirement, or require a top-up before the original deposit is returned.

Pay particular attention to refurbishment requirements:

• Who surveys the premises to determine the scope of refurbishment, and will they provide a written schedule of works?
• Can equipment that still works properly be retained after testing?
• Must you use nominated contractors, and can you obtain itemised quotations?
• How long will the outlet need to close, and will fixed fees still be charged during that period?

Do not justify your initial investment by assuming renewal is guaranteed. If recovering the cost of equipment requires two contract terms, the conditions for securing the second term are a significant investment risk, not an administrative matter to deal with later.

3. Establish whether renewal extends the existing agreement or requires a new one

“Renewal will be based on the franchisor’s version current at the time” means you may have to accept a different set of terms in future. Even if the brand and premises remain the same, royalties, operating restrictions and the length of the agreement may change.

Before signing your first agreement, ask the franchisor to explain its current renewal process and provide the relevant template documents. Today’s templates do not guarantee that future terms will remain unchanged. It is therefore more important to specify in the original agreement when the new version must be supplied, how changes will be highlighted and what happens if the parties cannot agree on the new terms.

A practical negotiating objective is to require the franchisor to provide the full terms before the renewal application deadline. This avoids having to commit to renewal before knowing the costs. Where refurbishment is required, you should also secure renewal approval and confirm the new contract term before committing to irreversible expenditure on the works.

Compare the renewal start date, the existing agreement’s expiry date and the refurbishment completion date to avoid any gap in authorisation to operate. If you need to continue trading temporarily while approval is pending, obtain separate written confirmation of the authorisation and fees for that interim period. Do not assume renewal has been completed simply because the franchisor continues to accept payments.

4. Understand Taiwan’s rules, but do not mistake disclosure for a renewal guarantee

Taiwan does have franchise-specific rules, although it has no single, comprehensive franchise statute. The Fair Trade Commission has issued the Fair Trade Commission Disposal Directions (Guidelines) on the Business Practices of Franchisors and addresses relevant conduct under the Fair Trade Act and other legislation. Contractual rights and obligations also fall within the scope of the Civil Code. The guidelines do not amount to government approval of any individual brand or agreement.

Under the guidelines, franchisors should generally provide key information ten days before entering into a franchise or preliminary franchise relationship, or within a period considered reasonable in the particular case or agreed by both parties. This information includes operating costs, operating restrictions, and the conditions and procedures for varying, terminating or rescinding the agreement. Ask the franchisor to clearly set out renewal-related fees and restrictions in the relevant disclosures.

Before a franchise-related agreement is signed, there must also be a review period of at least five days, or a period considered reasonable in the particular case. The disclosure deadline and the contract review period are separate requirements and should not be confused. Failure to comply, where sufficient to affect trading order, may engage Article 25 of the Fair Trade Act.

However, these rules do not automatically give franchisees a perpetual right to renew. Nor does incomplete disclosure necessarily mean that the agreement is invalid or that the franchisor must renew it. If a dispute arises over a refusal to renew or the validity of a clause, retain all versions of the agreement, notices and payment records, and seek an assessment from a lawyer familiar with franchise agreements in Taiwan.

Practical takeaway: before investing, obtain written answers on four points: renewal eligibility, decision deadlines, all costs and when the new agreement will be provided. If the franchisor will only promise to discuss matters at expiry, base your investment decision on the rights you can be certain of securing under the initial agreement.