Right to Request to Renew Franchise Agreement
Renewal of franchise agreement
- A franchisee may request a franchiser to renew a franchise agreement during the period between 180 days and 90 days prior to the expiration date of the franchise agreement (Article 13(1) of the 「Fair Transactions in Franchise Business Act」).
· No franchiser shall reject a request to renew an agreement without justifiable reasons (Article 13(1) of the 「Fair Transactions in Franchise Business Act」).
Period to exercise the right to request to renew
- A franchisee's right to request the renewal of the agreement may be exercised only when the total term of the franchise agreement, including its initial term, does not exceed ten years (Article 13(2) of the 「Fair Transactions in Franchise Business Act」).
Refusal of Renewal
Refusal to renew a franchise agreement
- In the following circumstances, a franchiser may refuse to renew an agreement with a franchisee (Proviso to Article 13(1) of the 「Fair Transactions in Franchise Business Act」).
· A franchisee fails to fulfill his/her obligation to make a payment, such as franchise fees under the franchise agreement
· A franchisee fails to accept any term or condition of the agreement or business policy that generally applies to other franchisees
· A franchisee fails to observe an important business policy of the franchiser that is considered necessary to maintaining the franchise business and that falls under any of the following categories:
√ Matters concerning the securing of business premises and facilities necessary for the operation of a franchise store or the acquisition of necessary qualifications, licenses, or permits under the relevant statutes
√ Matters concerning compliance with the manufacturing process or service techniques necessary for maintaining the quality of commodities or services on sale
√ Other matters considered necessary for franchisees to maintain their franchise business in a normal condition, such as the following: matters concerning the protection of intellectual property rights essential for the operation of a franchise of a franchiser; matters concerning the observance of education and training that franchiser conducts regularly for franchisee
※ However, where the expenses for education and training that must be borne by a franchisee are clearly higher than expenses normally requested by another franchiser in the same type of business, this shall not apply thereto.
How to refuse renewal
- A franchiser that intends to refuse a request for renewal of a franchise agreement made by a franchisee shall notify the relevant franchisee of the grounds for refusal within 15 days from the date it receives such request (Article 13(3) of the 「Fair Transactions in Franchise Business Act」).
Implied Renewal of Franchise Agreement
Implied renewal of franchise agreement
- Where a franchisee requests to renew a franchise agreement and a franchiser fails to give notice of refusal in any of the circumstances described below, the franchise agreement is deemed to be renewed under the same terms and conditions as those of the franchise agreement effective before the expiration of the agreement (Article 13(4) of the 「Fair Transactions in Franchise Business Act」).
· Franchiser fails to give notice of refusal
· Franchiser fails to give written notice to franchisee of a change in terms and conditions, or that it is not willing to renew the franchise agreement, during the period between 180 days and 90 days prior to the expiration date of the agreement
- Notwithstanding the foregoing, in the following cases the franchise agreement shall not be deemed to be renewed under the same terms and conditions as those of the franchise agreement (Proviso to Article 13(4) of the 「Fair Transactions in Franchise Business Act」 and Article 14(2) of the 「Enforcement Decree of the Fair Transactions in Franchise Business Act」).
· Franchisee raises an objection no later than 60 days before the expiration of the agreement
· A natural disaster occurs to franchiser or franchisee
· Franchiser or franchisee files for bankruptcy or compulsory execution procedures, or either is subject to workout procedures
· Bills or checks issued by franchiser or franchisee are dishonored due to default of payment, etc.
· Franchisee can no longer operate franchise due to significant personal reasons