Advisory Sep, 12 2011

Make the most of franchise tenure

Taking up a franchise is not a lifetime occupation. Franchisor signs up a franchisee for a fixed duration and keeps him intact till the time he is generating profits. The franchise agreement can come to an end even before the tenure is over or it can be e

By Abha Garyali
Sub Editor
Make the most of franchise tenure

Franchisor appoints franchisees for a fixed time generally referred to as a ‘Franchise tenure’ which is mentioned in the franchise agreement. During franchise tenure the franchisee is eligible to run a franchise outlet or store of a particular brand or a franchise. However franchise tenure generally varies from brand to brand and franchisee to franchisee.

Duration of franchise tenure

The franchise tenure can be as long as five years, depending on the comfort level of the franchisor in giving his brand to another entrepreneur. Moreover the extent of the franchise tenure is mostly fixed for all franchisees. Business owners prefer not to hold negotiations with aspirants on account of tenure and its longitivity. As informed by Anil Sharma, General Manager- Retail, Ferns N Petals, “Franchise tenure is generally done for initial three years with a renewal clause.” However in contrary Saurabh Shah, Head- Business Development, Sykes & Ray Equities said, “In our industry the tenure is ideally indefinite. While starting the franchise there is no mention of a termination clause. It can be altered as per the requirement of the client.” So it can be said that certain franchise companies do not have many strict laws for the length of ownership of their brand by their franchise partners.

Infringement of franchise tenure

There are number of instances when the franchise tenure lasts before the fixed time. In certain cases a franchisee wants to end the tenure where in other cases franchisor breaks the franchise agreement due to tribulations or disharmony between both the parties. Here are discusses few circumstances which can lead to this situation:

Breach of guidelines: Sometimes a franchisee does not adhere to the regulations of running the outlet as laid by the franchisor. This can be due to the over-confidence or superiority among franchisees.

Legal matters: In few cases there can be disharmony between franchisors and franchisees on account of certain legal matters. Sometimes a franchisee signs the franchise agreement without understanding the clauses and their long-term effects. This can lead to either of the parties dragging the other to court and cutting short the tenure.

Not maintaining adequate standards: A franchisor can anytime cut short the franchise tenure of his franchisee if the latter is unable to maintain the quality and services of the original brand. If the franchisor sees that his brand name is getting affected by the franchises carelessness, he can surely break the agreement.

Give-up by franchisee: Seeing failure and losses in his franchise outlet, the franchisee can break the franchise tenure by giving up the idea of entrepreneurship. He may re-sell the franchise to any other interested entrepreneur to make some profits from the franchise.

Breach of other terms and conditions: Franchise tenure can be broken in case of breach of terms and conditions as made by both the parties at the time of signing the agreement. Getting disappointed and dejected by the franchisor’s training and mode of doing business, the franchisee can also break up the agreement.

Such factors can surely lead to the breaking of franchise tenure. However, franchisee can not just handover a resignation to the franchisor (as in a job) and walk out of business. He has to offer valid reasons to the franchisor for breaking the set tenure. Shah said, “If the franchisee decides to exit with three years of operation, there is nominal fee charged. However if there are genuine reasons before the stipulated period to exit the same can be accommodated without any fee.”

Extension of franchise tenure

If there are cases of infringement of the tenure, there are also cases when the franchisee wants to extend the duration of his tenure. Franchisees who have been successfully running their outlet, do not want to give up the thriving business due to end of their tenure. In such conditions, they can extend the period by talking to their franchisors. Regarding this Sharma informs, “If the franchisee has remained in full compliance throughout the initial term, then renewal shall be on the same terms and conditions on which franchisor is then (currently) customarily granting new franchisees.” Similarly Shah says, “While taking a stock brokerage franchise there are registrations which are with the SEBI/ respected exchanges, which are for a period of five years. Thus they need to be renewed accordingly. However the franchisee only has to pay the fee and no additional documentation is required.”

Franchisor’s authority

The extension of franchise tenure finally rests in the hands of the franchisor. However successful the franchisee has been, the franchisor will not extend his period if he does not want. Sharma said, “To safeguard the brand image and in the interest of the brand, franchisor can refuse the extension if franchisee has failed to satisfactorily comply with franchisee's duties, obligations during the proceeding term.” Shah informs, “It is always in the interest of the franchisor to have long term relationship with his franchisees. Therefore franchisors always supports in the renewal process. Moreover without the support of the franchisor it is impossible for it to be renewed.”

It can be aptly concluded that a franchisee owns the franchise brand till he is running it profitably and works in accordance to the rules as set by the franchise owner. The tenure forms the basis of the entrepreneur’s stint as a franchisee which can be cut short or extended as decided by both the parties.

Related: Building a biz for faster delivery

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