Buying a franchise: Set clear limits on changes to the concept

A franchise network needs to be able to evolve. But new requirements for premises, equipment or digital systems can make your investment significantly larger than expected. Before buying a franchise in Denmark, you should therefore establish who can change the concept, what those changes may cover, and how you will secure the time and funding to implement them.

1. Check the right to make changes in both the agreement and the manual

The franchise agreement may not set out all your obligations. Day-to-day operating requirements may appear in an operations manual, technical specifications or other appendices that the franchisor updates regularly. If the agreement refers to these documents, check the legal effect of those references.

Ask for the current version of every document that will be binding on you. If material is confidential, access under a confidentiality agreement may be a solution. A presentation of the concept is not enough to assess your future investment obligations.

Look out in particular for wording such as:

• You must comply with the current concept at all times.
• The franchisor may amend the manual without separate consent.
• You must replace fixtures, equipment and systems as directed by the franchisor.
• The franchisee bears all costs of making adjustments.

These provisions are not necessarily unreasonable, but they can give the franchisor considerable discretion. Ask for a written explanation of whether the right to make changes also covers major refurbishments, new production equipment or a fundamental change to the business model.

Also establish which documents take precedence. Protection in the main agreement should not be undermined by a later update to the manual.

2. Understand Danish law and its limitations

Denmark has no specific franchise legislation. Nor is there a franchise-specific registration scheme or a statutory requirement to provide a standardised disclosure document before signing. However, this does not mean that a franchisor is free to provide misleading information or withhold material facts.

The franchise agreement is subject to the Danish Contracts Act and general principles of contract law. The starting point is freedom of contract. Depending on the circumstances, general principles concerning the duty to disclose information in good faith may require material facts to be disclosed before the agreement is concluded. The Danish Marketing Practices Act, including its rules on misleading practices, may also be relevant to how the offer is presented.

Section 36 of the Danish Contracts Act allows unreasonable contractual terms to be amended or set aside. However, it does not guarantee that you will later be able to avoid an expensive concept change. Each case is assessed on its own facts, and as a business owner you should not base your investment on the expectation that a term will subsequently be set aside.

The Danish Competition Act and relevant EU competition rules also place limits on certain requirements within a franchise network. A general variation clause does not make an otherwise unlawful requirement lawful.

The practical implication is simple: have the right to make changes reviewed before signing, and negotiate specific limits rather than relying on a verbal assurance that changes will always be reasonable.

3. Investigate planned changes and their full impact

Ask directly whether the franchisor is already considering or has decided on changes that will affect your outlet. These might include a new store concept, replacement of the point-of-sale system or different working procedures requiring additional equipment.

Ask for a dated, written overview of changes already decided on or currently planned, together with their expected timetable. This is not a guarantee against future developments, but it makes the basis for your decision clearer.

Also speak to existing franchisees about previous changes:

• How much notice was given between the decision and implementation?
• What costs arose beyond the purchase itself?
• Had the solution been tested before everyone had to adopt it?
• Were outlets with particular circumstances offered transitional arrangements?

Assess the full impact with your accountant. A new system may require installation, training, data conversion and a temporary period of running old and new systems in parallel. Refurbishment may mean days of closure and lost contribution margin. Existing equipment may also cease to be useful before it has paid for itself.

Prepare a separate cash-flow scenario that includes a major concept change during the agreement term. The aim is not to predict a specific expense, but to see whether the business could withstand an investment that cannot be funded from day-to-day operations.

4. Agree a process for major concept changes

A workable agreement distinguishes between minor operational adjustments and changes with significant financial consequences. Safety requirements or changes needed to comply with the law may call for a different process from an optional modernisation of the premises.

Discuss the following points with the franchisor and your lawyer:

• Scope: Which changes can be introduced through the manual, and which require a separate agreement?
• Notice: When must you receive a description, reasons, timetable and cost estimate?
• Investment limits: Should major or repeated investments trigger a requirement for specific approval or an agreed sharing of costs?
• Transitional arrangements: Can equipment that still works remain in use for a period?
• Remaining agreement term: How will investments close to the agreement’s expiry be handled?

Also define what happens if the parties disagree about whether a change exceeds the agreed limits. A right to be consulted is not the same as a right to approve. The agreement must therefore make clear whether you can merely comment or whether implementation requires your consent.

A well-run franchise network allows both scope for development and predictability for individual owners.

Practical takeaway: Do not buy solely on the basis of the concept you see today. Before signing, get written confirmation of how it may change tomorrow and who will foot the bill.