5 Franchise Agreement Clauses to Watch Before Signing

Five clauses carry most of the long-term risk in a franchise agreement: renewal, non-compete, mandatory upgrades, termination, and transfer. They are not hidden in the sense of being concealed — they are disclosed — but they are easy to skim past, and each can cost you years or serious money if the wording is wrong for you. Read these five with extra care, and resolve every question while you still have leverage, during the disclosure window before you sign.

1. Renewal terms

Renewal decides whether you actually get to keep the business you build. A franchise agreement runs for a fixed initial term — commonly somewhere between 5 and 20 years — and the renewal clause sets the conditions for continuing past it. The trap is assuming renewal is automatic or on the same terms.

Check three things: the conditions you must meet to renew (performance standards, being in good standing, signing a release), the notice deadline for exercising the option, and whether you renew onto the then-current agreement. Many systems require renewing franchisees to sign whatever the current form contract is — which can mean higher royalties or new obligations. Know that before you build a decade of goodwill.

2. Non-compete clauses

Non-compete clauses restrict you from running a competing business, both during the term and for a period after the franchise ends. The FDD summarizes them in Item 17 — rows (q) and (r) of the Item 17 table cover covenants during the term and after it ends, respectively — and the binding language sits in the agreement itself.

Enforceability is the key issue, and it depends heavily on state law. Non-compete law has been in flux: the FTC’s 2024 attempt at a nationwide ban was struck down in court and the agency abandoned the rule in 2025, so as of 2026 these covenants are governed by state law on a case-by-case basis. Some states enforce reasonable post-term covenants; others sharply limit them. To stand a chance of being enforced, a covenant generally has to be reasonable in duration, geographic scope, and the activity it restricts. Have the specifi