Buying a franchise: commitments to open additional outlets

Buying a franchise can involve more than opening your first outlet: some offers require you to develop several locations to a set timetable. That obligation changes both the investment required and the risk you take on. When expanding with a franchise brand, you need to distinguish a future opportunity from an enforceable commitment. This guide helps you assess that difference before signing.

1. Distinguish the right to expand from an obligation to open

An offer may give you priority for new locations, allow you to apply for additional outlets or require a specific number of openings. These are not equivalent arrangements. The word ‘expansion’ in a sales presentation is not enough to tell you what you are buying.

Ask for the contract to answer these questions in writing:

• How many outlets must you open, and by what dates?
• What counts as an opening: signing the lease, obtaining the operating licence or actually starting sales?
• Does each new outlet require the franchisor’s approval?
• Can you reject a location that is not financially viable?
• Is the additional opening optional, or are there consequences for failing to proceed?

Argentina specifically regulates franchising under Articles 1512 to 1524 of its Civil and Commercial Code, in force since 2015. Article 1513 covers development franchises, among other arrangements. If the offer involves multiple outlets, a lawyer should determine how the agreement is classified and which provisions apply; the package’s commercial name does not settle the matter.

Also distinguish operating several outlets yourself from granting franchises to third parties. Do not assume that buying expansion rights authorises you to sub-franchise.

2. Assess the investment across all outlets, not just the first

A profitable first outlet does not guarantee that you can finance the second on time. New openings may require upfront payments while the initial outlet still needs funds to operate.

Prepare a monthly payment schedule covering the entire commitment. Include fees for new units, rental deposits, fit-out work, equipment, recruitment, training and pre-opening expenses for each outlet. Add the costs of coordinating multiple locations, including supervision, travel and administration.

Separate accounting profit from available cash. Do not automatically assume that projected profits from the first outlet will be available to invest in the next. There may be outstanding taxes, stock that needs replenishing or sales for which payment has not yet been received.

Compare three scenarios: opening as planned, sales below forecast and overlapping expenditure across outlets. You do not need arbitrary percentages: use verifiable cost estimates and explain the assumptions behind each scenario.

Article 1514 requires the franchisor to provide, before signing, economic and financial information covering two years of performance at comparable units that have been operating long enough to provide it. To assess an expansion, also request performance information for operators running several outlets. This additional information is a request for assessment purposes; it should not be confused with the precise scope of the legal obligation.

3. Link targets to verifiable conditions

A fixed timetable can be difficult to meet if the brand must approve every property but has no deadline for responding. Review which decisions are within your control and which require action by the franchisor or third parties.

Propose a documented procedure for submitting locations, receiving feedback and obtaining a decision. It is also worth setting out what happens if a property is rejected or no alternative meets the agreed requirements.

For subsequent openings, negotiate objective conditions: the availability of suitable locations, delivery of the promised support and sufficient operational capacity to take on another unit. If you agree to a performance-based review, define which indicators will be used, the period they will cover and who will verify them.

Do not assume that commercial difficulties suspend your obligations. Any options to reschedule, reduce or cancel openings must be expressly agreed, with legal review. Avoid vague wording such as ‘the parties will adapt the plan to market conditions’, which does not explain how decisions will be made or what happens if no agreement is reached.

4. Check whether a missed opening affects every outlet

Read the development agreement alongside the contracts for each outlet. Look for clauses that allow a breach of one agreement to be treated as a breach of the others.

Ask whether failing to open a unit could result only in the loss of your expansion rights, or also in penalties, payments being retained or the termination of contracts for outlets that are operating properly. These consequences are not interchangeable and should be assessed before you commit your investment.

Negotiate written notices, opportunities to remedy breaches and proportionate consequences. Clarifying which payments relate to rights already exercised and which relate to future openings also allows you to discuss in advance how those payments will be treated if the plan changes.

Practical conclusion: before signing, summarise on one page the mandatory openings, the expenditure they require, the conditions for proceeding and the consequences of failing to comply. If you cannot complete that page using the contract, there are still essential points to negotiate.