Buying a Franchise: Check Maintenance and Modernisation Obligations

Even a promising location can come under financial pressure if equipment needs replacing or premises need modernising shortly after you take over. Shared quality standards ensure consistency across a franchise network. For buyers, however, the key questions are which maintenance obligations they will take on and who will pay for future upgrades. So look beyond the initial fit-out and check the rules that apply throughout the period of use.

1. Distinguish between maintenance, repairs and modernisation

Not every business expense arises for the same reason. Maintenance keeps equipment working, while repairs fix faults. Replacement becomes necessary when an item can no longer reasonably remain in use. Modernisation, by contrast, may be required solely because of a new design concept or technical standard across the franchise network, even if the existing equipment still works.

These distinctions matter when reviewing the contract. A general obligation to keep the premises “up to date with the franchise network’s current standards at all times” does not, on its own, explain which measures this covers or who must fund them.

Draw up an overview of the main components of the business:

• What equipment, furniture and technical installations are required?
• Who arranges and pays for maintenance, repairs and replacements?
• What inspections or maintenance intervals must be observed?
• Who can require modernisation, and on what grounds?
• Which costs can already be specifically anticipated?

Include point-of-sale systems, digital ordering devices, lighting and external signage. Numerous smaller replacement obligations can add up to a substantial financial burden.

2. Establish the actual condition before buying

When taking over an existing business, a well-kept appearance is not enough to base your decision on. Ask for an equipment inventory showing purchase dates, maintenance records and known defects. Specifically ask about any announced refurbishments and any notices already issued requiring defects to be remedied.

Useful documents to review include:

• maintenance logs and the latest technical inspection reports;
• invoices for major repairs and replacement purchases;
• outstanding quotations for necessary work;
• communications from the franchisor about planned modernisation;
• available guarantee, statutory warranty and servicing documents.

For expensive technical equipment, an independent condition assessment may be worthwhile. It should identify not only current faults but also signs that replacement may be needed in the foreseeable future. Such an assessment is not, however, a guarantee of the remaining useful life.

Also establish whether existing service contracts and any related rights or claims can actually be transferred to you. Simply handing over an invoice does not automatically give you all the previous buyer’s rights. Agree which identified defects will be remedied before the takeover and how completion will be documented.

3. Understand and limit investment obligations under German law

Germany has no dedicated franchise legislation and no franchise-specific state registration or approval procedure. Franchise agreements are governed primarily by the German Civil Code (Bürgerliches Gesetzbuch, or BGB), the German Commercial Code (Handelsgesetzbuch, or HGB) where applicable, and other general legislation. A franchise agreement typically combines elements of several types of contract.

For pre-drafted maintenance and modernisation clauses, the rules governing standard terms and conditions under sections 305–310 BGB are particularly relevant. Under section 307 BGB, clauses that lack transparency or unreasonably disadvantage the other party may be invalid. Limits also apply in business-to-business contracts, although not every extensive investment obligation is automatically invalid.

Duties of consideration and disclosure already arise during contract negotiations under sections 311(2) and 241(2) BGB. You should therefore ask specifically about known upgrade plans that are material to your buying decision and keep a record of the answers. German law does not require a standardised franchise disclosure document for this purpose.

Aim to agree the following points as precisely as possible:

• objective grounds for mandatory upgrades and their scope;
• reasonable notice periods and implementation deadlines;
• clear cost information before work is commissioned;
• cost limits or requirements for your consent to major work;
• exceptions for recently purchased equipment of an equivalent standard;
• a procedure for disputes over whether work is necessary or how it should be carried out.

These safeguards are points for negotiation, not automatic entitlements. Have the final provisions reviewed by a specialist lawyer rather than relying on a clause being found invalid later.

4. Plan for responsibilities and business interruptions

The franchisor, landlord, leasing company and franchisee may each have different responsibilities. For every major installation, check which contract determines who is responsible. An obligation to the franchisor to keep the business operational does not automatically mean that the franchisor will cover the cost of a technical failure.

Unclear divisions of responsibility are particularly risky. For example, who looks after a ventilation system that forms part of the building but must meet specific requirements for the franchise operation? Record separately who arranges the work, who pays and whose consent is needed.

Alongside the work itself, factor in possible closure days, reopening costs and payment obligations that continue during the interruption. Clarify expressly whether franchise fees will be reduced during a refurbishment and, if so, on what conditions. Do not treat discretionary refurbishment support as a secured source of funding unless there is a binding commitment.

Practical takeaway: Do not sign until you have a clear picture of the condition of the premises and equipment, the division of responsibilities and foreseeable upgrades. An equipment inventory, documented modernisation plans and clearly defined limits on investment obligations make the long-term commitments involved in buying a franchise easier to budget for.