Franchise Fit-Outs in China: Agree Refurbishment Frequency, Budgets and Closure Costs Before Signing

When assessing a franchise brand, fit-out visuals are easy to understand, but obligations to refurbish later are often buried in the operations manual. Before joining a franchise network, ask not only “How much will the initial fit-out cost?” but also “Who can require a refurbishment later, how often, and at what maximum cost?” Agreeing these points helps avoid another major construction bill before your outlet has recovered its initial investment.

1. Establish where the fit-out obligations are set out

Article 11 of China’s Regulations on the Administration of Commercial Franchising requires a written franchise contract and lists fees, quality standards and measures to ensure those standards among its main terms. The regulations do not prescribe a standard fit-out cost per square metre, refurbishment cycle or budget ceiling. These matters need to be agreed between the parties; a franchise sales representative’s verbal estimate is not a safeguard.

Article 21 also requires the franchisor to provide the prescribed information and the contract text in writing at least 30 days before the contract is signed. Use this pre-signing review period to request all supporting documents covering fit-out obligations: design specifications, materials lists, acceptance checklists and the operations manual’s provisions on brand image upgrades. Do not stop at a clause in the main contract requiring you to “comply with uniform standards”.

Check the version and date of every document, and specify in the contract which takes precedence if they conflict. If the franchisor cannot yet provide a final design, agree the sequence for design sign-off, budget approval and the start of work. Avoid committing to pay all costs for works whose scope has not been defined.

2. Turn the initial quotation into an itemised schedule of works

A “fit-out price per square metre” is only a starting point for comparison. Fire safety provisions, electrical supply, drainage and the condition of existing fittings vary between premises, so costs can differ significantly even within the same brand. Ask for the quotation to distinguish at least the following:

• Brand design: site measurement, design, drawing revisions, signage and branded decorative features.
• On-site works: strip-out, preparatory and basic construction work, electrical and plumbing alterations, materials, labour and waste removal.
• Project management: construction management, remedial work required for acceptance, taxes and charges, and any testing or approval fees.

For each item, state what is included, what is excluded and who will receive payment. Do not leave the quotation at “charged according to actual costs incurred”. For items that cannot yet be priced, agree that a quotation will follow measurement or testing and will require the franchisee’s written approval.

If the franchisor specifies a designer or contractor, check the legal entity actually undertaking the work. Clarify who signs the construction contract, who issues invoices and who remedies defects. A recommendation from the franchisor does not automatically make it responsible for all construction work. Any promise to coordinate the work or provide a guarantee should be recorded in writing.

3. Distinguish essential remedial work from brand image upgrades

Not all alterations create the same type of obligation. Consider dividing contractual requirements into three categories: remedial work needed to meet legal and safety requirements; repairs arising from damage or inadequate maintenance at the outlet; and visual upgrades initiated by the brand. Their triggers, urgency and allocation of costs should be addressed separately.

For brand image upgrades, you can negotiate the following limits, but these are not standard statutory entitlements:

• Limit the number of full refurbishments within an agreed period, with routine maintenance defined separately.
• Require fresh written consent from the franchisee if the cost of an individual refurbishment exceeds the agreed budget.
• Specify the advance notice required, along with the design, scope of works and expected closure arrangements.
• Require separate negotiation of non-essential major refurbishments near the end of the contract term, rather than making them automatic.

Safety hazards and legally required remedial work should, however, be dealt with promptly in accordance with the law. Budget approval provisions should not be used to delay necessary measures.

Define the scope of an “upgrade” as well. Replacing posters or adjusting illuminated signs costs a very different amount from removing a counter and rewiring the premises. A clause that merely requires refurbishment “to head office’s latest standards” makes it difficult for franchisees to assess their ongoing investment. Ask the franchisor for previous upgrade plans and the actual scope of works as a reference, while recognising that past practice is not a commitment about the future.

4. Set out closure costs and change procedures together

Refurbishment costs extend beyond the construction bill. Rent and staff wages may remain payable during closure, alongside costs for dealing with stock and reopening. Budget separately for work completed on schedule and for an extended construction period. Do not assume that rent relief or a subsidy from the franchisor will be available.

The contract should explain who sets the construction window, who liaises with the shopping centre or property management, and how responsibility is allocated when delays result from late designs, defective work or changes initiated by the franchisee. If the franchisor promises an upgrade subsidy, specify the amount or calculation method, supporting application documents, payment milestones and whether it must be repaid if the franchisee exits early.

For additional work arising during construction, use a consistent procedure: propose the change, explain the reason, itemise its effect on costs and the programme, and obtain written approval from an authorised person before proceeding. Brand compliance sign-off should also be distinguished from acceptance of construction quality. Meeting visual standards does not mean that concealed work is free of defects, nor does it replace any legally required procedures.

Practical takeaway: Before making payment, prepare a fit-out schedule to the contract that clearly sets out the scope, budget, upgrade triggers, closure arrangements and approval process for additional work. The real comparison is not just the initial fit-out price, but the refurbishment obligations you may have to fund over the entire contract term.