Does the Extreme Art Studio Franchise Agreement allow for negotiation of the terms of the renewal agreement?
Extreme_Art_Studio Franchise · 2024 FDDAnswer from 2024 FDD Document
| Provision | Section in Franchise Agreement and Multi-Franchise Addendum | Summary |
|---|---|---|
| (b) Renewal or extension of the term | Section 13.1 | One additional ten-year term, if you meet the requirements. |
| (c) Requirements for franchisee to renew or extend | Section 13 | The term "renewal" refers to extending our franchise relationship at the end of your initial term and any other renewal or extension of the initial term. Your successor franchise rights permit you to remain as a Franchise after the initial term of your Franchise Agreement expires. You must provide written notice; full compliance; sign then-current form of franchise agreement; sign release; maintain possession of Studio location; complete refurbishing; pay successor franchise fee; and others. You must sign our then-current Franchise Agreement and ancillary documents for the successor term, and this new franchise agreement may have materially different terms and conditions (including, e.g., higher Royalty and advertising contributions) from the Franchise Agreement that covered your original term. The boundaries of your Territory may change, and the fees on renewal will not be greater than the fees that we then impose on similarly situated renewing franchisees. |
Source: Item 17 — RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION (FDD pages 43–46)
What This Means (2024 FDD)
According to the 2024 Extreme Art Studio Franchise Disclosure Document, the terms of the renewal agreement are not negotiable. To renew the franchise agreement for an additional ten-year term, a franchisee must sign the then-current form of the franchise agreement. This successor franchise agreement may contain materially different terms and conditions, including potentially higher royalty and advertising contributions, compared to the original agreement. The territory boundaries could also change upon renewal. The fees on renewal will not be greater than the fees that Extreme Art Studio then imposes on similarly situated renewing franchisees.
This means that while a franchisee has the option to renew if they meet certain requirements, they must accept the franchise agreement as it exists at the time of renewal. There is no provision for negotiating specific terms, such as royalty rates, advertising fees, or territory boundaries. The new agreement could be significantly different from the original, potentially impacting the franchisee's profitability and operational control.
This lack of negotiation power puts the franchisee at a disadvantage. They must decide whether to accept the new terms, however unfavorable, or exit the Extreme Art Studio system entirely. Franchisees should carefully consider this aspect before deciding to invest in an Extreme Art Studio franchise, as it affects their long-term business prospects and financial obligations. It is common in franchising that the renewal agreement is based on the then-current form, but some franchisors may be open to limited negotiations.