Franchising and multi-unit franchisees: agree the terms for growth

When you turn your existing business into a franchise network, your first prospective franchisee may want to open several locations from the outset. This can accelerate growth, but it also increases your reliance on a single partner. So, when preparing your contract model, decide how a franchisee can expand beyond their first unit. Permission to use the concept alone does not establish who may open a new unit, on what conditions or under whose responsibility.

1. Distinguish single-unit rights from a promise of expansion

A franchisee may operate one or more units in line with the network’s concept. However, as the network’s founder, you should decide whether the initial agreement grants rights only for a named location or also offers scope for later expansion. A vague promise of future units can create conflicting expectations.

In practice, you could prepare options such as:

• Unit-by-unit approval: each new location is approved separately, with no automatic right to expand.
• Conditional expansion opportunity: the franchisee may be granted another unit if predefined conditions are met.
• Agreed development programme: the parties commit to separately specified openings, deadlines and conditions.

These are options created through contracts, not types of franchise agreement defined in Finnish law. Choose a model based on how well your concept and your own organisation can support growth.

Also clarify whether the franchisee may only establish units of their own. The right to operate several locations does not in itself include the right to grant franchises to other operators. Make this distinction explicit so that everyone understands the structure of the relationship.

2. Define the evidence required for a second unit

Success at the first location does not, on its own, demonstrate that a franchisee can manage several units. Strong results may depend on their being present almost all the time. Before the next opening, you also need evidence of management capability, cover arrangements and the ability to embed operating procedures among staff.

Draw up a written assessment checklist before offering an opportunity to expand. Areas to review might include whether the first unit is firmly established, whether agreed obligations have been met, how customer feedback is handled and whether the franchisee is ready to appoint a manager for the new unit. The financial assessment should cover both the new opening and the existing unit’s ability to keep operating effectively.

Ask the franchisee to describe a typical working week with two locations. Where will they work? Who will deal with urgent issues at the other unit? How will they monitor both operations without every decision having to wait until they are there?

Also agree when the assessment will take place, which documents are required and who will make the decision. The conditions must be clear enough for the franchisee to prepare for them. If approval remains subject to the franchisor’s discretion, say so explicitly. Do not present a discretionary opportunity as a guaranteed right.

3. Make the contractual arrangements clear for each unit

A multi-location relationship can be structured around an overarching agreement with unit-specific schedules, or through separate agreements. What matters is not the number of documents, but whether the rights and responsibilities for each unit can be identified.

Record, at a minimum, the location, the business operating it, the start date, the contract term and the obligations relating to that unit. If the franchisee uses different companies, confirm which company is a party to each agreement. Common ownership does not automatically make those companies liable for one another’s debts or contractual obligations.

Also decide how the agreements relate to one another. If a material breach occurs at one location, will it affect the other units? Linking all units together can significantly increase the consequences. Review such provisions with a lawyer to assess whether they are necessary, clear and reasonable.

Allow for contract terms that start at different times. A unit opened later should not be left in an unclear position because the first unit’s agreement expires earlier. Specify the order of precedence between documents and ensure that the general terms and unit-specific schedules do not promise different things.

4. Align expansion promises with Finland’s legal framework

Finland has no dedicated franchising act or general register specifically for franchisors. Nor is there a general statutory requirement for a franchise disclosure document in a prescribed format. This does not, however, exempt the parties from their obligations under general legislation.

Relevant legislation includes the Finnish Contracts Act, under which an unreasonable contract term may be adjusted or set aside. The Unfair Business Practices Act is relevant, for example, where false or misleading information is given about future expansion. The Competition Act and, where applicable, EU competition rules may also restrict provisions such as non-compete clauses and terms governing the franchisee’s commercial activities.

The Finnish Franchising Association’s Code of Ethics is a form of industry self-regulation, not law. Check whether it applies, for example through membership or a reference incorporated into the agreement. Compliance with the Code does not replace a legal review of the contract terms.

Explain clearly to the franchisee what constitutes a binding promise of expansion, what is a target and what is merely an opportunity for negotiation. Maintain the same distinction in presentation materials, discussions and the final agreement.

5. Allow for growth to be postponed

A sound growth model includes a procedure for situations where opening the next unit as planned would not be advisable. Reasons might include insufficient management capacity on the franchisee’s part, delays in securing suitable premises or limits on the franchisor’s own ability to provide support. Distinguish conditions that are the franchisee’s responsibility from matters beyond their control.

Agree how a change to the timetable should be requested, who approves it and what happens to preparations already made. If the development programme is binding, separately define the consequences of failing to open a unit. Simply recording a growth target does not settle these questions.

Practical checklist: choose your expansion model, define the approval criteria and have the contractual links between units reviewed before making your first promise of growth. A franchise network becomes stronger when a second unit opens on the basis of demonstrated readiness, rather than enthusiasm alone.