Buying a franchise: who pays for mandatory premises upgrades?

When joining a franchise network, it is easy to focus on the cost of opening your premises. Yet it is just as important to know who can require you to replace equipment, refit the interior or introduce new technology a few years down the line. A mandatory upgrade is not simply another operating expense: it may require a loan and a temporary closure. Before buying a franchise, check not only the brand’s current standards but also the rules governing future changes.

1. Find out what equipment commitments you are actually making

Investment obligations may not all appear together in the contract. They may be tucked away in the operations manual, visual identity guidelines, technical schedules or renewal terms. A clause stating that the premises must “always comply with the current concept” can have a far greater financial impact than a detailed list of the initial equipment required.

Ask for the current version of every document referred to in the contract. If these contain confidential know-how, offer to sign a reasonable non-disclosure agreement. Record the date or version number of each document and check whether it is binding on you.

In particular, ask:

• Which equipment must be replaced regularly, and on what criteria?
• Are upgrades mandatory during the contract term, or only on renewal?
• Can you retain working equipment that meets the technical requirements?
• Is the brand planning to change its visual identity or technology platform?
• Who decides that the premises no longer meet the required standards?

Get written confirmation of the starting position. Otherwise, a dispute may arise over whether you are buying premises ready to open or equipment that will soon require further investment.

2. Check the experience of other franchisees

A general assurance that equipment is replaced “only when needed” is not a basis for a budget. Ask the franchisor for examples of previous upgrades across the network: what changed, how much notice operators received and which costs they had to cover themselves. Past practice is no guarantee of the future, but it will give you an idea of how head office makes decisions.

With the consent of the operators concerned, review anonymised budgets or at least a breakdown of expenditure. Also speak to franchisees who have already renewed their contracts. This is often when a mandatory refit can become a condition of continuing the relationship.

Do not look only at the price of furniture and equipment. The total impact includes design work, installation, disposal of old equipment, any necessary permits, training and business downtime. Ask whether the upgrade could be carried out in stages and whether the supplier met the promised deadline. For a new brand without this track record, request at least a technical plan and clearly identified budget assumptions.

3. Distinguish between legal obligations and brand requirements

The Czech Republic has no dedicated franchise legislation and no statutory requirement for a pre-contractual franchise disclosure document. A franchise agreement is usually an agreement not specifically defined as a contract type under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. General rules on contract law, good faith and pre-contractual liability apply, among others.

The absence of a specific disclosure requirement does not mean that material facts can be withheld during negotiations without consequences. Even so, actively request information about planned investment and keep a record of the responses. A voluntary franchise industry code of ethics is not law and does not replace specific contractual safeguards.

A lawyer should assess how the contract incorporates manuals and whether, and to what extent, it allows them to be changed unilaterally. Do not assume that every new head office requirement will automatically be binding, or that you can automatically refuse it. The specific contractual terms and applicable law are what matter.

Separate alterations required by law, for example for safety or hygiene reasons, from aesthetic changes required by the brand. Depending on the business activity, building, fire safety or food regulations may also apply. The contract can allocate costs between the parties, but it cannot remove your statutory duties as an operator.

4. Negotiate rules for changes, not just a promise to be reasonable

The aim is not to freeze the concept for ever. A well-run network needs to innovate. You need to know what those decisions will mean for your finances and timetable.

In particular, propose contractual provisions covering:

• Scope of changes: what head office can require without a further agreement, and what needs your consent.
• Investment cap: how total mandatory investment is calculated over an agreed period, and whether it includes associated work.
• Notice period: when you will receive the specification, budget and implementation deadline.
• Exceptions: how urgent measures required by law will be handled, and who must demonstrate that they are necessary.
• Cost sharing: when the franchisor will contribute, and how suitable alternative equipment will be assessed.

Pay particular attention to investment required shortly before the contract expires. For example, negotiate the postponement of non-essential upgrades, a contribution from head office or an extension of the franchise relationship agreed in advance. Do not assume you have an automatic right to reimbursement for investment you have not had time to recoup.

5. Test whether you can afford the upgrade

Work with an accountant to draw up a separate equipment replacement scenario. Alongside the investment itself, include finance repayments, rent and wages that continue during closure, and a contingency for delays. If you will need a loan, check that financing is available; head office approval for an upgrade is not a promise of bank funding.

Compare the repayment period with the remaining term of the franchise agreement. Your budget must not depend solely on the assumption that the brand will renew your agreement later.

Practical takeaway: Before signing, ask for the current equipment standards, an overview of planned changes and contractual rules governing their cost, timing and approval. Treat mandatory upgrades as a future investment commitment, not a minor note in the manual.