Do franchise renewal rights transfer to a new owner?

A buyer paying for a franchise location is partly paying for how long it can keep operating. Years remaining on the current term are visible. A renewal right is only as good as the clause that creates it, and that clause was written for the franchisee who signed the agreement, not necessarily for whoever buys the location.

Read who the renewal right belongs to

In the existing agreement, find the renewal clause. Does it name the franchisee, or say it applies to a transferee? Note the conditions: good standing, a notice window, a renewal fee, upgrades to the premises, or signing the franchisor’s then-current form. Ask whether those conditions are measured against the seller’s history or the buyer’s. Our answer on what happens when a franchise agreement expires covers the renewal mechanics.

Assignment or a new agreement

If the franchisor approves an assignment, the buyer may step into the old agreement and its renewal clause. If the buyer signs a new franchise agreement instead, the renewal right in the old one may not carry across, and the new document sets its own term and renewal terms. Ask which route applies, and read the document you will actually sign.

What the Acts say about renewals

Ontario’s and British Columbia’s franchise Acts exempt a renewal or extension from the franchisor’s disclosure duty if there has been no interruption in the franchisee’s operation of the business and no material change since the agreement, or the latest renewal, was entered into. Alberta’s Act exempts a renewal or extension of an existing franchise agreement from its disclosure section. These are disclosure exemptions. None of them gives anyone a right to renew.

Ask for the answer in writing

Before you commit, ask the franchisor to confirm the expiry date, whether renewal is available to you, and every condition attached. Make your offer conditional on that confirmation. Our answer on how remaining term affects a franchise resale price explains why the term matters to the deal.