Franchise agreements last for a fixed period of time – most commonly five years – but, franchisees should be able to renew their franchise on a number of occasions.
If an agreement is not renewed – which would only happen if the franchise was not operating profitably – then the post termination obligations in the franchise agreement would apply. Those obligations would prevent a franchisee from operating a competing business for a period of time and, of course, the franchisee would not be able to trade using the franchisor’s brand and know how. In other words, at that stage, the franchise business would stop and, therefore, would have no value.
The assets of the franchise business including the premises would generally still be owned by the franchisee, although most franchise agreements allow a franchisor, on termination or expiry, to take over the franchisee’s business assets and usually, the price which is payable to the franchisee is low because it takes no account of the goodwill value of the franchisee’s business. Further, in retail franchises where the premises are important, very often franchisors have a deed of option which enables them, subject to obtaining the landlord’s consent, to take over the premises used by the franchisee.
In summary, franchisees still own their assets but they are not likely to have much value in view of the provisions of the franchise agreement.