This is a question that many new franchisors, as well as those already in business, are asking themselves.

The typical duration of a franchise agreement has evolved since the 1980s, due in part to the increasingly rapid and far-reaching changes experienced by most franchise networks, and in part to the unfortunate experiences of some franchisors in expanding their networks.

Until the late '80s, most franchise agreements were for 20 to 25 years, with a single renewal period of often the same length.

However, as a franchise agreement is first and foremost a contract that can only be modified during its term if the parties mutually decide to do so by means of an amendment or a new agreement, many franchisors found that such durations imprisoned them for a long time in an agreement that prevented them from making certain changes to adapt to the reality of their markets or to take account of various innovations, opportunities and threats directly affecting them (such as online sales, delivery platforms, the rapid evolution of technology in many areas, and changes in laws and regulations).

Over time, and in the light of experience, many networks have gradually reduced the duration of their franchise agreements to the point where, today, most franchise agreements have an initial duration of between 3 and 10 years, plus one or more renewal options of 3 to 5 years each.

This significant reduction in the duration of the franchise agreement enables the franchisor to have each franchisee sign a new, up-to-date franchise agreement (provided, of course, that the agreement provides for the signing of a new, up-to-date agreement as a condition for renewal) at the time of each renewal.

Also, each renewal is an ideal opportunity to update the layout, signage and equipment of each franchised outlet to reflect any changes made by the franchisor (also provided that the agreement provides for updated layout, signage and equipment as a condition of renewal).

We invite you to read, or reread, our bulletin entitled Are You at Risk of Getting in Trouble Because of Your Renewal Clauses?

So what is the ideal duration of a franchise agreement noawdays?

On the one hand, franchisors want to keep their franchisees for as long as possible. On the other hand, they don't want to be locked for too long into a contract which prevents them from developing their network and making any changes they see fit.

For their part, franchisees want to remain within the network for as long as possible, and not be forced to accept too-frequent changes that require unforeseen additional investments, or that add significantly to franchise costs.

Finally, the duration of a franchise agreement must also take into account the level of investment to be made by the franchisee, and the time required to amortize this investment and to provide the franchisee with a reasonable chance of realizing an attractive return on her or his investment.

Depending on the franchisor's sector of activity, the characteristics of the franchisees sought, the level of investment required in the franchise, and the terms and conditions of the financing contracted by the franchisee, the ideal initial term of a franchise agreement today can therefore range from one year to 20 years, but, for most networks, is somewhere between 5 and 10 years.

As for renewal options, one to five options of around 5 years each are suitable for many networks, although longer renewal periods may be necessary when significant additional investment is required by the franchisee at each renewal.

Ultimately, the ideal duration of a franchise agreement may vary from franchisor to franchisor, depending on the franchisor's sector of activity, its competition, the characteristics of the franchisees sought, the level of investment required in the franchise, the financing to be obtained by each franchisee, and the franchisor's business model.

So, while the initial term, as well as the number and length of renewal periods, of a franchise agreement may seem easy to determine, they raise a number of questions and involve various pitfalls and issues. Therefore, it is always preferable to discuss them with an expert franchising lawyer and the franchisor's financial advisors.

We invite you to contact any of the authors of this bulletin if you have any questions. We will be happy to answer you promptly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.