Franchise Fit-Outs in China: Agree Costs, Acceptance Standards and Refurbishment Responsibilities Before Signing

When joining a franchise network, investors often focus on the franchise fee and treat the premises fit-out as a minor matter to sort out after signing. In practice, design revisions, additional building works and delays in head office approval can leave a business paying rent without being able to open. This guide focuses on fit-outs: how to agree completion standards before signing and avoid bearing the full cost of changes beyond your control.

1. Obtain the fit-out standards before deciding whether to sign

Do not estimate your investment solely from photographs of a model outlet. Premises within the same franchise network may need very different works depending on their size, building conditions, fire safety requirements and property management restrictions. Before signing, ask the franchisor for the fit-out specifications applicable to your outlet format, and confirm whether these have been assessed against the premises you intend to lease.

In mainland China, Article 22 of the Regulations on the Administration of Commercial Franchising includes the investment budget for a franchised outlet among the information that must be disclosed before signing. Article 21 requires the franchisor to provide the prescribed information and the contract text in writing at least 30 days in advance. The Measures for the Administration of Information Disclosure in Commercial Franchising set out further disclosure requirements. Fit-out investment should not be explained merely as ‘subject to head office standards’, but a disclosed budget does not automatically amount to a fixed-price commitment either.

Ask for at least the following:

• The applicable outlet format, the version of the fit-out standards and the essential works required;
• The basis of the budgets for design, construction and equipment installation, including exclusions;
• The elements that must be standardised, such as shopfront signage, materials and lighting, and those for which local alternatives are permitted;
• The process for revising the design if the premises do not meet its requirements, and who will bear the cost.

If you have not yet chosen premises, label the budget clearly as a preliminary estimate and agree that costs will be reassessed once site conditions are known. Do not confirm in advance that you ‘fully understand all fit-out costs’.

2. Clarify who designs, who builds and who pays for additional works

A contractor recommended by head office is not necessarily one whose workmanship head office guarantees. First check who will sign the design and construction contracts, who will receive payment and who will issue the invoices. The franchisor, its associated companies and independent contractors should not be treated as a single responsible party simply because they use the same promotional materials.

Require an itemised quotation showing quantities, material specifications, unit prices and the scope of works. It should state whether tax, transport, demolition, waste removal and equipment connections are included. Be particularly careful with an ‘all-in opening price’: check which items are actually excluded.

If you must use a nominated contractor, clarify why this is necessary, whether you can compare other quotations, and whether you can replace the contractor if work stops or serious quality problems arise. Also establish whether head office will continue to provide design support and carry out its acceptance checks after a replacement.

Ideally, additional works should follow a written approval procedure. The contractor should set out the reasons, cost and effect on the programme, with work proceeding only after approval by the agreed authorised person. Design changes requested by head office should also specify who pays. For urgent on-site work, agree a process for prompt notification, photographic records and subsequent verification. This helps prevent a vaguely worded site variation record from becoming grounds for unlimited additional charges.

3. Separate head office approval from acceptance of the building works

Once the fit-out is complete, distinguish at least three issues: whether the contractor has delivered what the construction contract requires; whether head office considers the outlet compliant with the brand’s image; and whether the premises meet applicable statutory requirements, including fire safety and operating licences. Head office permission to open does not replace legally required procedures. Nor does brand approval establish that concealed work is free from defects.

Article 11 of the Regulations on the Administration of Commercial Franchising requires franchise agreements to cover matters including operational guidance, services and liability for breach. For fit-out support, translate these requirements into verifiable steps rather than simply stating that ‘head office will provide guidance throughout’.

An appendix should specify:

• When head office must provide feedback after receiving a complete set of drawings;
• Which documents are required for the site inspection and who gives approval;
• How non-compliant items will be listed and when a reinspection will take place after remedial work;
• Whether minor issues that do not affect safety or normal operations can be rectified within an agreed period;
• How costs arising from design errors, construction delays or delayed head office reviews will be allocated according to their cause.

Avoid a clause treating a failure to reply by the deadline as confirmation that all opening conditions have been met. A safer approach is to agree a formal reminder procedure for delayed reviews, corresponding extensions to affected deadlines and responsibility for demonstrable losses. You can also negotiate for the final construction payment to be linked to clearly defined acceptance milestones, with separate provisions for the defects warranty period and repair response times.

4. Set limits on compulsory refurbishment during the franchise term

Completing the initial fit-out does not necessarily end your spending on the premises. If the contract allows head office to require every outlet to refurbish whenever it updates the brand image, franchisees may face further closure and construction costs before recovering their initial investment.

Distinguish legally required safety work, routine maintenance and brand image upgrades. Necessary work in the first two categories cannot simply be refused on the grounds of a spending cap. Purely visual brand upgrades, however, are suitable for advance agreement on notice periods, triggering conditions, scope and cost-sharing.

Key points to negotiate include whether newly opened outlets will have a period without mandatory brand image changes; whether outlets approaching the end of their franchise term can defer upgrades; whether equipment that still meets the standards can remain in use; when head office subsidies will be paid; and whether fixed management fees will be adjusted during refurbishment closures. These are contractual arrangements to negotiate, not statutory concessions that apply automatically.

If head office asks you to sign first and says it will publish the fit-out standards later, include a mechanism in the contract for confirming those supplementary standards. Avoid being treated as having accepted any future scheme by default. If a cost dispute arises, retain the original drawings, variation notices, site photographs and payment records. Responsibility should then be assessed under the contract and the Civil Code of the People’s Republic of China, rather than assuming that every additional requirement is invalid.

Practical takeaway: before signing, obtain at least one applicable set of standards, an itemised quotation and a clear list of responsibilities. Every fit-out requirement should answer three questions: who decides, who pays and who signs it off?