Building a franchise network: assess premises before signing a lease

A successful business cannot simply be replicated at any address. If you are developing your existing business into a franchise network, you therefore need a clear, documented process for assessing new sites. The key question is not just whether premises look attractive, but whether your concept is commercially, operationally and legally viable there. This assessment should take place before prospective franchisees enter into long-term lease commitments.

1. Develop a site profile based on your existing business

Start with the location characteristics of your own business, rather than property listings. Which features genuinely contribute to its success? Footfall may be important, but for an appointment-based service, it may matter less than accessibility, parking or proximity to your target customers.

Distinguish between essential requirements and features that are merely beneficial. A large shopfront may be helpful, whereas a technically suitable ventilation system may be indispensable. This prevents personal preferences from later being treated as supposed requirements of the franchise system.

Create a site profile with three categories:

• Deal-breakers: Conditions without which the business cannot legally or practically operate, such as a lack of delivery access or unsuitable utility connections.
• Commercial criteria: Total rental costs, refurbishment requirements, potential demand and competition within the catchment area.
• Qualitative criteria: Visibility, surroundings, the appeal of the setting and alignment with the brand’s image.

For each criterion, record the basis for your assessment. Observations from a single business do not yet constitute universally applicable evidence. If your original business benefits from your personal reputation, for example, you cannot assume that advantage will transfer to a new site.

The result should not be a rigid specification for an ideal property, but a well-founded search profile that you can refine as you gain further experience.

2. Assess every property using the same evidence requirements

A property brochure is a sales document, not a complete basis for a decision. Have a standard assessment file prepared for every site under serious consideration. It should bring together floor plans, floor area measurements, lease terms, details of previous use and outstanding technical questions.

Check the following points in particular:

• Demand: Who is expected to shop here or book services? What verifiable evidence is there of this target customer base?
• Accessibility: How will customers, staff and suppliers reach the premises? Does the situation change at different times of day?
• Operations: Do customer routes, workstations, storage, toilet facilities and waste disposal arrangements suit the way the business will actually operate?
• Costs: What expenses will arise beyond the base rent, such as service charges, a deposit, alterations, maintenance or obligations to reinstate the premises at the end of the lease?
• Permitted use: Is the intended use already permitted, or do approvals or a change of use need to be addressed?

Visit the site at different relevant times. Record observations with dates and context, rather than relying on impressions such as “good location”. Involve suitably qualified specialists or the relevant authorities where technical or building and planning law issues arise.

Also model a cautious scenario: what happens if the opening is delayed, refurbishment costs rise or demand builds more slowly than expected? A site should not appear viable only under optimistic assumptions. Clearly distinguish assumptions from established facts.

3. Clarify responsibilities and legal boundaries

Germany has no standalone franchise act and no general franchise-specific registration requirement. The German Civil Code (Bürgerliches Gesetzbuch, or BGB), commercial tenancy law and the relevant building, planning and business regulation laws are particularly important when assessing sites. Standard contract terms are also subject to review under sections 305 onwards of the BGB, taking account of the rules applicable to business-to-business dealings.

Duties to take account of the other party’s interests and disclose relevant information arise even during pre-contractual negotiations. Their legal basis lies particularly in sections 311(2) and 241(2) of the BGB; a breach of duty may give rise to damages under section 280. You should therefore avoid presenting your own site assessments as assurances of success, and must not conceal known material risks.

Site approval must neither appear to guarantee turnover nor seek to disclaim all responsibility through a blanket exclusion of liability. What matters is the work you actually undertake and the specific statements you make to the franchisee.

Set out in writing who is responsible for each check. Who obtains the documents? Who assesses technical suitability? Who clarifies approval requirements? Who pays for external assessments? Also define what your approval means, for example that the site meets the concept’s documented requirements.

The franchisee remains a legally independent business owner. Your support does not replace their own investment decision. Equally, their independence does not remove your responsibility for inaccurate information you provide. Have a qualified adviser ensure that this allocation of responsibilities is consistent with the drafting of the franchise agreement and lease.

4. Arrange approval before binding commitments are made

Plan a staged process: an initial review of the documents, a joint site visit, technical and commercial assessments, followed by a documented decision. Appoint a person responsible for bringing together outstanding issues and granting or refusing approval.

A decision may also be subject to conditions, such as evidence that the necessary approvals can be obtained or a firm quotation for refurbishment work. In that case, state explicitly which evidence is still missing and when a further review will be required.

Avoid a situation in which franchisees sign unconditional, long-term leases while these matters are still being resolved. Whether conditions precedent, withdrawal rights or other safeguards can be agreed depends on the individual circumstances and negotiations with the landlord. Have the specific arrangements legally reviewed; reserving premises does not automatically provide adequate protection.

Practical next step: Before starting your first site search, prepare a search profile, a standard assessment file and a written approval process. This will help your franchise network make site decisions on a clear, documented basis rather than under time pressure.