Renewing a Franchise Agreement While Being Forced to Relocate

The situation

Meron spent over a decade as a factory technician before he and his wife, Tesfay, an early childhood educator, decided to buy into a franchise together. They pooled their savings, took out a loan, and bought a small retail franchise unit in a Markham plaza — the kind of business where the brand, the store layout, the supplier relationships and the operating rules all come from a head office under a franchise agreement, a contract that lets someone run a business under an established brand in exchange for fees and strict compliance with the franchisor's system. Nine years later, the business was steady: roughly $650,000 in annual revenue, two part-time staff, and a customer base that had grown up around the store.

Their original ten-year franchise agreement was approaching its end, which meant they needed to sign a renewal agreement to keep operating. Around the same time, their landlord notified the franchisor that the plaza was being redeveloped and their unit would not be available going forward. The franchisor's head office sent Meron and Tesfay a renewal package that bundled both issues into one letter: sign a new ten-year term, and relocate to a smaller unit in a different plaza roughly fifteen minutes away, at their own cost.

What the renewal package actually asked for

Meron and Tesfay brought the renewal package to our team before signing anything. Reading it closely, three problems stood out.

First, the relocation cost estimate. Moving fixtures, signage and equipment to a new unit, plus the buildout required to bring the new space up to the franchisor's current design standard, ran to roughly $180,000. The franchisor's letter offered a $40,000 contribution toward that cost — a fraction of what the move would actually require — with the balance to come from the franchisee.

Second, the new unit was smaller than their current one, which under the franchisor's own historical sales data for comparable stores typically meant lower revenue, yet the renewal agreement set royalty and marketing fund payments — the ongoing percentage of sales owed to the franchisor — at the same rate as before, with no adjustment for the smaller footprint.

Third, and most concerning, the renewal term itself. A ten-year commitment is a long time to be locked into a new location before knowing whether the smaller unit could sustain the business, especially when the move itself was not the family's choice.

Franchise agreements in Ontario are governed in part by the Arthur Wishart Act (Franchise Disclosure), 2000, which requires franchisors to give prospective and renewing franchisees fair and honest dealing and imposes disclosure obligations before certain agreements are signed. It does not require a franchisor to offer any particular relocation package or renewal term — those are commercial terms, negotiated like any other contract. But the duty of fair dealing meant the franchisor could not simply present the bundled package as take-it-or-leave-it without at least engaging in good faith discussion, and that gave Meron and Tesfay real room to push back.

What we did

1. Separated the two decisions on paper, even though the franchisor had bundled them. Relocation and renewal are legally distinct questions — one is about where the business operates, the other about how long the franchisor relationship continues. Treating them as one signature invited Meron and Tesfay to accept unfavourable renewal terms simply because they had no real choice about the relocation. Our team drafted a response that addressed each issue on its own terms, which reframed the negotiation from the start.
2. Reviewed nine years of store performance against the franchisor's own comparable-store data. The franchisor had cited average sales figures for smaller-format units elsewhere in its system when justifying the unchanged royalty rate. We requested the underlying data and cross-referenced it against Meron and Tesfay's own historical sales, which showed their unit consistently outperforming the smaller-format average — useful leverage for arguing the franchisor's own numbers didn't support treating the two locations as equivalent.
3. Pushed the relocation contribution based on documented buildout costs, not the franchisor's estimate. We asked Meron and Tesfay to obtain two independent contractor quotes for the new unit's buildout to the franchisor's design standard. Having a documented, itemized cost made it harder for the franchisor's head office to defend a flat $40,000 offer as reasonable, and shifted the conversation to specific line items rather than a round number.
4. Proposed a shorter renewal term tied to the relocation. Rather than fight the ten-year term outright, we suggested a five-year renewal with an option to extend, on the reasoning that neither side could confidently price a ten-year commitment to a location neither of them had operated from before. A shorter initial term with a built-in extension option gave the franchisor comfort that the family would stay if the new location worked, while giving Meron and Tesfay an exit if it didn't.
5. Negotiated directly with the franchisor's regional representative rather than only exchanging letters. Written correspondence had produced a standard-form response; a call changed the tone. Our team joined Meron and Tesfay on a call with Thalia, the franchisor's regional representative handling the renewal, to walk through the contractor quotes and the sales comparison in real time and answer questions on the spot.

The outcome

The final agreement was a compromise, not a clean win. The franchisor raised its relocation contribution from $40,000 to roughly $95,000 — still short of the full $180,000 buildout estimate, meaning Meron and Tesfay had to fund the remaining roughly $85,000 themselves, largely through a loan against the business. That was a real cost, and one they had not budgeted for when they first signed on nine years earlier.

On the terms that mattered for the long run, the negotiation went further. The franchisor agreed to a five-year renewal instead of ten, with an option to extend for a further term if sales at the new location met a threshold tied to the historical performance data the family had presented. The royalty rate stayed at the same percentage — the franchisor would not move on that point — but the marketing fund contribution was reduced for the first eighteen months at the new location, giving the business a period to rebuild its customer base without the full fee load.

Meron and Tesfay did not get everything they asked for. The relocation still cost them money they hadn't planned to spend, and the royalty rate held firm. But the shorter term meant they weren't locked into an unproven location for a decade, and the marketing fund reduction eased the first months of rebuilding. Head office also agreed, in writing, to prioritize the family for future site selection input if a third relocation were ever proposed during the new term — a small but concrete acknowledgment that the first relocation had been handled poorly on their end.

The store relocated a few months later. Early sales at the new unit ran below the old location's, as expected for a smaller footprint in an unfamiliar plaza, but within the range the family and the franchisor had both projected going into the negotiation.

What you can learn from this