Buying a franchise: agree who pays for customer complaints

Customers see a shared brand, but the cost of resolving a complaint may fall on the local franchisee. A franchise network’s shared service promise needs clear responsibilities alongside it: who handles the complaint, who authorises compensation and who ultimately pays? Before buying a franchise, pay particular attention to situations where your business is responsible to the customer but the fault stems from the network’s instructions, products or systems.

1. Separate responsibility to customers from internal cost allocation

Start by establishing which business contracts with the customer. Is the seller identified as your business, the franchisor or another party? Check this separately for orders placed at the outlet, through the network’s online service and through any intermediary. A shared payment system or brand does not, on its own, determine who the contracting party is.

If your business is the seller, it may have to put things right for the customer even if the problem originated elsewhere. The agreement between the franchisor and franchisee does not remove the customer’s rights under mandatory legislation. Whether you can recover the cost from the franchisor is a separate question.

Ask to see customer order confirmations, receipts, terms of sale and complaints guidance. These should give a consistent picture of which business the customer is dealing with. Any ambiguity can delay resolution and create extra investigative work for the franchisee.

Before negotiations, draw up a simple responsibility map: customer’s contracting party → complaint handler → person authorising compensation → party ultimately paying. If any part remains unclear, ask for a written answer.

2. Identify situations where the cost originates elsewhere

The Finnish Franchising Association’s guidance on agreement content highlights quality control, complaints and liability for defects. As a prospective buyer, look beyond a general liability clause: how are costs allocated in different situations where something goes wrong?

Discuss at least the following examples with the franchisor:

• An employee of your business makes a mistake when delivering a service.
• A mandatory procedure set by the franchisor leads to a faulty outcome.
• A product from a supplier selected by the franchisor is defective.
• The shared ordering system transmits an incorrect order.
• The franchisor promises compensation to a customer without consulting your business.

The basis for liability may differ in each case. Do not assume that the franchisor will reimburse you simply because you followed its instructions. Check supplier agreements too: any claim for reimbursement may need to be made against the supplier rather than the franchisor.

Ask for anonymised examples of resolved cases. Find out whether costs were allocated in practice as the agreement specified. A single example does not guarantee how future cases will be handled, but it can help identify questions you might otherwise overlook.

3. Agree who can authorise compensation and how reimbursement works

The complaints procedure should explain what the franchisee can resolve independently and when the franchisor’s approval is required. Decision-making authority must align with responsibility for costs. If the franchisor can require your business to pay customer compensation, you need a clear understanding of the limits of that power.

Distinguish between a statutory remedy for a fault and a voluntary goodwill gesture to preserve the customer relationship. A satisfaction guarantee that goes beyond the usual level of protection may create costs even where the product or service is not legally defective. Establish who makes that promise and who funds it.

Add the following to your negotiation checklist:

• how the complaint and its cause are documented;
• how quickly the franchisor must respond to a request for approval;
• how urgent customer issues are handled while approval is pending;
• what evidence is required for reimbursement;
• when an approved reimbursement will be paid to the franchisee.

Specify which costs are reimbursable. The product price alone may not cover redoing work, transport, disposal or payment-provider refund charges. Also agree what happens if the customer has already been compensated but the franchisor subsequently disputes its own liability. It is sensible to keep resolution of the customer’s complaint separate from any internal dispute over costs.

4. Check Finnish legislation and limitations of liability

Finland has no dedicated franchising act, no statutory requirement for a prescribed pre-contractual disclosure document and no special registration system for franchise agreements. Contractual relationships within franchise networks are governed by general legislation, including the Contracts Act, the Unfair Business Practices Act and the Competition Act. The Sale of Goods Act may also apply to sales of goods.

For sales to consumers, the Consumer Protection Act is central. The allocation of liability between the franchisee and franchisor must not weaken consumers’ mandatory rights. For business customers, the position depends on the applicable law and the customer contract; consumer sales rules should not simply be carried over into business-to-business sales.

When buying a franchise, you generally act as a business operator, not as a consumer. Have a lawyer review, in particular, the franchisor’s limitations of liability, deadlines for claims and clauses requiring you to indemnify the franchisor for costs arising from customer claims. The possibility of having an unreasonable term adjusted under the Contracts Act is no substitute for careful negotiation beforehand.

The Finnish Franchising Association’s Code of Ethics is self-regulation, not law. The obligation to follow the code that comes with membership does not, by itself, determine who bears the cost of an individual complaint. That requires sufficiently precise contractual terms.

5. Test the allocation of responsibility before deciding to buy

Choose one routine complaint scenario and one serious one. Work through both in writing, from the customer’s initial contact to the final allocation of costs. At each stage, record who is responsible, what approval is needed and what costs must be paid. This will help you assess whether the procedure will work under pressure too.

Check separately with your insurer what your proposed cover includes. Do not assume that liability insurance covers all customer compensation, remedial work or liability extended by contract. Also assess the cash-flow impact if your business has to pay the customer first and receives reimbursement later.

Practical checklist: before signing, confirm who contracts with the customer, who can authorise compensation and how costs are allocated in writing. A sound complaints procedure protects both customer relationships and the franchisee’s finances.