Buying a franchise: how to limit refurbishment costs

The initial fit-out of your premises may not be your last major investment in a franchise. A new look for the outlet, the replacement of working equipment or a different sales floor layout may become compulsory during the contract term. Shared standards are valuable within a franchise network, but changes to them should have predictable financial consequences. Before signing, check not only how the premises must look at opening, but also who will pay for future changes.

1. Distinguish maintenance from changes to the brand concept

A clause requiring the franchisee to maintain the premises “in line with current brand standards” can cover very different obligations. Repairing a damaged counter is not the same as replacing every counter because the franchisor has changed the brand’s visual identity. Similarly, servicing working equipment is different from being required to buy a new model.

Ask for the contract to distinguish between three categories of work:

• Routine maintenance: repairs, cleaning and replacement of worn parts to maintain the existing standard.
• Regulatory compliance: work required to meet applicable safety, technical or other legal requirements.
• Changes to the brand concept: new equipment, furniture, lighting or layouts required by the franchisor as the franchise system develops.

For each category, establish who determines the scope, who bears the cost and how the completion deadline is set. A contractual allocation of costs does not, however, remove the obligations owed to the relevant authorities by the person legally responsible.

Also ask for examples of previous refurbishments at comparable outlets: what changed, how long the work took and whether the outlets had to close. These examples do not guarantee future costs, but they show how the franchisor implements changes in practice.

2. Check the basis of the investment obligation

Croatia has no dedicated law comprehensively regulating franchises. A franchise agreement is an innominate contract — one not specifically defined as a contract type by statute — to which the general provisions of the Croatian Obligations Act apply, including the principle of good faith and fair dealing and the rules on performing contractual obligations. Depending on the nature of the relationship, other legislation also applies, such as the Competition Act, while the work itself is subject to the relevant building and technical regulations.

There is no specific statutory cap on franchise refurbishment costs, nor does a franchisee have an automatic right to refuse every expensive change to standards. The precise wording of the contract therefore matters. The European Code of Ethics for Franchising is no substitute for statutory protection or clear contractual safeguards either: it is a self-regulatory instrument, not Croatian law.

Pay particular attention to wording such as “at your own expense”, “as required by the franchisor” and “within a period determined by the franchisor”. If these appear together without limits, ask a lawyer to assess their scope and negotiate more precise terms.

A verbal assurance that the concept rarely changes is not a sufficient basis for a financial plan. Request written confirmation of any changes already planned, and contractual provisions governing the process for changes that may arise later.

3. Agree the process, notice period and cost limits

The most useful protection is not a general statement that costs must be “reasonable”, but a process that allows you to assess them before commissioning work. Propose that any requirement from the franchisor should come with a description of the change, technical specifications, the reasons for it and an implementation plan.

Then negotiate the following points:

• Advance notice: a period that allows time to obtain quotes, arrange contractors and plan financing.
• Frequency: a minimum interval between major refurbishments, with separate provisions for urgent and legally required work.
• Investment threshold: an amount, or a method of calculation, above which further written consent or a cost-sharing agreement is required.
• Phased implementation: the option to replace equipment gradually rather than all at once.
• Evidence of compliance: clear criteria for the franchisor’s acceptance of the completed work.

Specify whether the agreed threshold covers only the work and equipment, or also design, transport, installation and other associated charges. Clarify whether it includes VAT. Otherwise, an apparently clear limit may leave a large part of the bill outside its protection.

If the franchisor will not accept a cap on the total cost, consider alternatives: a contribution from the franchisor, a longer implementation period or an exemption for a recently opened outlet. These are negotiating proposals, not rights that arise automatically.

4. Account for business interruption and the remaining contract term

A contractor’s cost breakdown does not capture the full impact of refurbishment. Add the costs of temporary storage, moving equipment, reopening and commitments that continue while the outlet is closed. Assess the impact of lost sales separately, without assuming that a new look will automatically increase revenue.

The contract should specify whether fixed franchise fees remain payable during an approved closure and who bears the consequences of delays caused by changes to the franchisor’s specifications. Do not assume that closure alone suspends payment obligations.

Seek particular protection against major investment requirements towards the end of the contract term. Possible solutions include deferring the work, a contribution from the franchisor or an agreed reimbursement of part of the investment in precisely defined circumstances. An asset’s remaining book value does not, in itself, create a right to reimbursement.

Practical takeaway: before signing, draw up a single table showing the type of work, who bears the cost, the notice period and the agreed limit. If you cannot fill in those four fields for future refurbishment, the financial obligation is not yet clear enough.