Most all franchise agreements are only granted for a limited amount of time and there's good reason for this finite limit. The only thing constant use change in franchising that is more true than ever. Once a franchise term has ended for the franchisee, often franchisors will grant a renewal term, which will start upon the date it which the old franchise term ended. This of course must be clearly discussed in the initial franchise agreement.

In our franchise agreements I came up with a clause that work well for my company and I have listed below for your review. I would not recommended you copy it word for word, but rather use this to help develop your thoughts and so you are knowledgeable about what a renewal term in franchising means;

1.3.2 Renewal Term

Subject to Section 1.3.3, Franchisee may renew its right to operate as a Franchisee of Franchisor for three (3) successive five (5) year terms provided that the Franchisee has remained in full compliance throughout the previous term and on the same terms and conditions on which Franchisor is then customarily granting new franchises; or, if Franchisor is not then granting any new franchises, then on the same terms and conditions on which Franchisor is then customarily granting renewal franchises by executing the then current form of such agreement. Franchisee will not be required to pay a renewal fee upon exercise of such right. Franchisee must give Franchisor written notice of intent to renew such right not more than one hundred eighty (180) calendar days nor less than ninety (90) calendar days prior to the expiration of the preceding term.

The renewed Franchise Agreement will be evidenced by the Franchisee signing the Franchise Agreement forms, which Franchisor is then using. These forms may vary materially from this Agreement. Royalty Fees, Advertising and Promotional Fund fees and other fees will be set at the then prevailing rates and terms. The failure or refusal to execute the Renewal Franchise Agreement forms within thirty (30) days after delivery to the Franchisee may be regarded as an election by the Franchisee not to renew. Upon renewal, the Franchised Business must remain located in the geographical territory designated in this Agreement. The Marketing Area may be modified and its geographic area may be reduced.

Franchisee will reimburse Franchisor for Franchisor's reasonable out-of-pocket costs concerning the renewal. Franchisee will refurbish, remodel, and replace the Franchise equipment to conform to the then current Confidential Operations Manual and System. There will be no limitation on the amount that Franchisor may require Franchisee to spend on refurbishing, remodeling and replacement. Upon renewal, Franchisee must execute a general release, in a form prescribed by Franchisor, following applicable law, to release Franchisor from any claims Franchisee may have against the Franchisor or any predecessor, sister or co-branding companies of the Franchisor, their current or former shareholders, directors, officers, employees, agents and their spouses.

Before renewal, Franchisee or their designated manager will attend and successfully complete any retraining program Franchisor prescribes in writing. This will be done at the Franchisee's expense, including travel, meals, lodging, and the then current training fee.

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Once you have the knowledge and fully understand what a renewal term in the franchise agreement is, then you must go see your own legal counsel and get advice from a franchise attorney on this subject. It is extremely important that a clearly defined renewal term including the conditions for are easily understood in plain English. I hope you will consider this in 2006.