How to Set Up Site Approval and Lease Coordination Before Franchising in China

When developing an existing business into a franchise network, poor site choices often stem not from an inability to assess footfall, but from a disconnect between commercial assessment, property checks and lease signing. Before recruiting franchisees, head office should establish who is responsible for checking the premises, when a site can be approved, and what happens if the premises are not handed over or the necessary licences and approvals cannot be obtained. The process below is intended for businesses franchising in mainland China.

1. Turn site selection experience into verifiable criteria

A location that works for a company-owned outlet may not be suitable for a franchisee to replicate. Head office should first document the premises requirements of its existing outlets, turning subjective assessments such as “a good location” into criteria that can be recorded and checked.

It is useful to divide site selection criteria into three categories:

• Commercial requirements: Target customers, access routes, visibility, nearby competition, delivery access, and whether a realistic operating budget can cover rent and property management charges.
• Technical requirements: Electricity and water supplies, drainage, extraction, structural capacity to support equipment, storage, and loading and unloading facilities. Specify which are essential and which can be addressed through alterations.
• Compliance requirements: The permitted use of the premises, authority to let them, and the licensing, fire safety and other premises requirements relevant to the proposed business.

Requirements may vary by business format, city and individual property, so a single nationwide checklist should not be applied indiscriminately. Head office can set minimum standards, then require local professionals to verify the details.

It is particularly important to distinguish between “currently compliant” and “promised to be compliant following alterations”. For the latter, record who is responsible for the work, who will pay, the completion deadline and the evidence required to confirm satisfactory completion. A landlord’s verbal assurance is not enough to approve a site.

2. Introduce staged approval to avoid signing a lease before assessment

The site selection process should have three stages: initial screening, on-site verification and written confirmation. Each stage should identify the documents required and any outstanding issues, rather than simply producing an “approved” decision.

At initial screening, the prospective franchisee submits the address, floor plans, photographs, quoted costs and proposed business activities. Head office then decides whether the site merits further investigation. Applicants should not be required at this stage to make non-refundable payments covering a long rental period.

On-site verification should cover evidence of ownership or another lawful basis for letting the property, any authorisation to sublet, the actual condition of the premises and key facilities. Questions about the feasibility of obtaining licences and approvals should be checked with the relevant local authorities or suitably qualified professionals. A landlord’s or leasing agent’s claim that “a similar business operated here before” is no substitute for current checks.

Written confirmation should specify the outlet proposal being approved, the basis of the assessment and any conditions. For example, approving an address for an outlet of a particular size does not also approve a broader range of business activities or additional kitchen equipment.

Head office’s site approval is neither regulatory permission nor a guarantee of profitability. However, head office remains responsible for the assessment work it has undertaken to perform. A blanket statement that “all risks are borne by the franchisee” cannot excuse missing checks. A change of address, reduction in floor area or change of business use should trigger a fresh confirmation.

3. Align the franchise agreement with the lease

Article 11 of China’s Regulations on the Administration of Commercial Franchising requires franchise agreements to be in writing and to specify the content and delivery arrangements for services such as operational guidance and technical support. If head office provides site selection support, the agreement should clearly define the scope of its assessment, the documents required, the response procedure and the checks each party must undertake.

Article 21 of the same regulations, together with the Measures for the Administration of Information Disclosure in Commercial Franchising, sets out pre-contract disclosure requirements. As a general rule, head office must provide the legally required information and the contract text in writing at least 30 days before the franchise agreement is concluded. These requirements cannot be avoided by first signing a “site selection service confirmation” that imposes substantive franchise obligations. The nature of a document should be assessed by reference to its actual content.

Leases are primarily governed by general legislation, including the Civil Code of the People’s Republic of China. Before signing, pay particular attention to the following:

• Whether the named tenant matches the entity that will operate the business and apply for licences. If an individual will sign initially, establish whether the landlord’s consent will be needed for a company to take over the tenancy later.
• Whether the permitted use under the lease covers the planned business, and whether fit-out works, signage and necessary alterations are authorised.
• Whether the lease term, rent-free period and handover date align with the franchise authorisation period and fit-out schedule.
• Which documents the landlord must provide for licence applications, and what happens if the premises are not handed over as agreed or property-related obstacles arise.

If the parties wish to provide for termination and refunds where necessary licences or approvals cannot be obtained, they should specify the circumstances covered, supporting evidence, notice periods and arrangements for settling costs. Such provisions require the landlord’s express agreement. Including them in the franchise agreement does not automatically bind the landlord.

4. Carry out a final check before work begins

After approving a site, head office should recheck key conditions before fit-out work and equipment purchases begin. This helps prevent franchisees from committing funds on the basis of outdated plans or unfulfilled property-related promises.

The review should cover, at a minimum, the final lease, records of the actual handover, the confirmed fit-out plans and the status of any applicable licence and approval applications. If problems emerge, such as insufficient electrical capacity, an obstructed extraction route or a change in the floor area handed over, pause the affected expenditure and assess possible adjustments. Do not skip checks simply to meet an opening date.

Keep a record of approvals for exceptions to the standards: who requested the departure, what additional costs it might create, who approved it and whether the franchisee was fully informed. Do not turn the first franchise outlets into trials of an untested format while continuing to present them as an established model.

Practical takeaway: Before recruiting franchisees, prepare a site requirements checklist, a written approval template and a lease coordination checklist. Ensure that every substantial commitment of funds to premises rests on verified conditions and a clear allocation of responsibilities.