Franchising offers an array of exciting opportunities for entrepreneurs, but a franchise agreement isn’t something to enter into lightly. A franchise agreement outlines all elements of the franchisor and franchisee relationship, including the legal duration of the partnership.
The length of a franchise agreement can vary quite significantly depending on things like industry, business model or specific contract terms. It is a vital aspect to consider when deciding whether franchising is right for you.
What is the Typical Term of a Franchise Agreement
While heavily dependent on various factors, an initial franchise agreement generally lasts 5 years. However, for some industries, the term may extend to 10 or 20 years.
Factors Affecting the Duration of a Franchise Agreement
There is no one-size-fits-all when it comes to franchise agreements, and the exact terms will largely depend on the following considerations.
Industry
Some industries will have shorter terms than others. For instance, fast food franchises tend to have shorter franchise agreements because the industry undergoes rapid change – i.e. adapting to customer preferences and evolving trends. Franchisors and franchisees can benefit from these shorter agreements that more easily allow for changes and adaptations.
Industries that require more upfront investment or long-term client acquisition may have longer franchise terms spanning up to 20 years or more.
Business Model
Similarly, the business model of a particular organisation will affect how long the initial agreement lasts. Some model types may require time to build up the right customer base or fully establish the business. More complex businesses may also call for lengthier training or planning periods, which will be accounted for in the length of the agreement.
Investment Level
Higher-investment franchises will also generally have longer franchise agreements, providing franchisees with sufficient time to recoup their initial investment and start seeing good returns.
Franchisor Preference
Some franchisors may just prefer doing things a specific way, offering term durations they know have worked well for them in the past. Franchise agreements will depend on their priorities and goals, with some franchisors preferring the flexibility of shorter terms and others preferring the stability of longer terms.
Are Franchise Agreements Negotiable?
Yes, franchise agreements can be negotiable, but again, it will heavily depend on the specifics of the franchisor and which elements of the agreement you want to negotiate.
You may be able to negotiate the length of your agreement, although this will probably be primarily influenced by the franchisor’s ability to be flexible and your experience as a franchisee. New franchisees will have less bargaining power than seasoned individuals with a proven track record.
What Happens When a Franchise Agreement Expires?
When a franchise agreement ends, franchisees must cease operating under the franchisor’s name and brand. However, there are several other options for franchisees aside from letting the expiration run its course and giving up the franchise business.
One likely option will be a renewal of the agreement with updated terms, allowing franchisees to continue operating their business as they have been. The possibilities for renewal will be set out in the initial franchise agreement, ensuring both parties understand what’s expected when that time comes around.
The ability to renew the agreement will depend on the franchisee's performance and external factors like leases outside of the franchisor's control.
If the franchisor feels franchisees have not upheld the agreement, renewal will likely not be granted. Some renewals may also be subject to negotiation, so franchisees who have seen success will be in a good position to leverage favourable terms for the next period.
Franchisees may also be able to sell the business to a third party or back to the franchisor if they do not want to renew the agreement. If you choose not to renew, you may have to follow a range of post-term expectations such as non-compete agreements – again, these will be outlined in the original franchise agreement.
Can You Get Out of a Franchise Agreement?
Getting out of franchise agreements can be difficult if there is not a specific termination clause or if there has been no breach of contract. Some franchisors may be more flexible with term lengths, but may also charge early termination fees.
Considering the various exit strategies at the beginning of your franchise journey will help provide a comprehensive picture of your options and ensure you’re prepared for multiple outcomes. The most common exit strategy is to sell the franchise, which the franchisor will typically need to consent to.
Esquires Coffee Franchise Agreement
The length of an Esquires franchise agreement will depend on the lease term of the property where the store is located. This will typically be for an initial period of around 10-15 years. The precise length will be clearly outlined in the official franchise agreement.
Thinking of embarking on a new adventure with franchising? To find out more about our coffee shop franchise and what’s involved in an Esquires agreement, please get in touch or fill in a franchise application.
