How many years is a typical franchise agreement?

The great majority of franchise agreements in the UK last for five years. There are two reasons for that.  The first is that generally franchisees make a loss in their first year, make a smaller loss/break even in their second and then make a profit in their third, fourth and fifth years.  Secondly, competition law states that some restrictions/obligations on franchisees can only be imposed for five years.  If a five year agreement is granted you would expect franchisees also to have the opportunity to renew their franchise on at least two occasions giving a total of 15 years.

It is extremely unusual for a franchise agreement to last less than five years and, indeed, if a shorter term is granted it is open to doubt whether a true business format franchise agreement is being entered into.

For some franchises which involve substantial capital investment by a franchisee a longer term is granted so that franchisees have longer to recover, through operating a profitable business, their initial investment.  When a ten year term is granted franchisees should expect to be able to renew once.

For very high cost franchises such as McDonald’s or Burger King, franchises are granted for the full term of the lease – usually 25 years – with no right to renew.