Hong Kong Franchise Fit-Out Guide: Agree Budgets, Acceptance Criteria and Extra Charges Before Signing

If you are preparing to open a franchise in Hong Kong, simply adding the franchise fee to a fit-out quotation will not give you the full funding requirement. Behind the brand’s design visuals may lie further costs for design work, alterations to building services, approvals and snagging. Clearly allocating responsibilities between the franchisor, franchisee and contractor helps reduce friction before opening. This guide focuses on fitting out your first premises: how to turn “meeting brand requirements” into written arrangements that can be priced, checked and kept within budget.

1. Turn Brand Standards into a Complete Scope of Works

A franchise case study in the Trade and Industry Department’s “Ask the Experts” series reminds prospective franchisees to budget for shop fit-out costs as well as franchise fees, and to consider whether the premises meet brand standards. In practice, a common mismatch is that the franchisor’s model-store photographs and the contractor’s quotation cover quite different scopes of work.

Before paying a deposit, ask the franchisor to provide design requirements specific to the premises, including drawings, material specifications, signage requirements and mandatory layout or equipment provisions. Distinguish compulsory standards from recommendations. If locally sourced materials may replace imported ones, set out the approval procedure in writing too.

When comparing quotations, check at least the following items individually:

• Whether design, surveying and professional consultancy services are included.
• Who is responsible for demolition, waste removal, electrical work, water supply and drainage, ventilation and fire safety-related works.
• How charges are calculated for submissions to the landlord or relevant authorities, drawing revisions and arranging inspections.
• Whether shopping centre working restrictions, deposits, protective measures and final cleaning incur additional charges.

Not every item will apply to every shop. Suitably qualified professionals should confirm what is needed for the premises and their intended use. Do not simply apply another branch’s fit-out costs to your own, or accept a quotation labelled “all-inclusive” without a clear list of exclusions.

2. Clarify Who Contracts, Who Approves and Who Pays for Design Changes

A contractor recommended by the franchisor does not mean the franchisor accepts responsibility for workmanship or cost overruns. Before signing, establish whether the franchisee contracts directly with the contractor, or whether the franchisor undertakes the works and then arranges construction. Who does the designer answer to? Who has authority to instruct the contractor to make changes?

If you appoint the contractor directly, attach the franchisor-approved drawings and specifications to the works contract, and identify the agreed version in the franchise agreement. Otherwise, the contractor could complete the works to the original drawings while the franchisor refuses approval against a different set of standards, leaving you caught between two contracts.

Consider negotiating the following written arrangements:

• The franchisor must respond to drawings within an agreed period and provide a consolidated list of required revisions.
• If an approved design changes because the franchisor subsequently changes its requirements, responsibility for additional costs and the effect on the programme must be agreed first.
• Changes arising from site conditions, statutory requirements or the franchisee’s own requests must be assessed under an agreed procedure, separately from franchisor-requested design changes.
• The contractor must not charge the franchisee for additional work solely on the basis of verbal instructions from the franchisor’s staff.

Brand approval means only that the franchisor accepts the design. It does not establish landlord consent or compliance with statutory requirements. All three must be checked separately; none is a substitute for the others.

3. Control Cost Overruns with Variation Procedures and Staged Payments

Divide the fit-out budget into confirmed works, items awaiting verification and a contingency allowance, rather than focusing only on the bottom line of the quotation. For work that remains uncertain, ask for the estimating assumptions, quantities and unit rates. Obtain separate quotations for excluded items so that essential additions do not emerge only after signing.

Include payment dates in your opening cash-flow forecast alongside rent, wages and initial stock. Treat the fit-out contingency and post-opening working capital separately. Do not assume that all remaining funds will be available to settle the final works payment.

The works contract can require any additional work, except predefined urgent safety measures, to be supported by a written quotation explaining the reason, cost and effect on the programme before approval by a designated person. Keep communication records too, to avoid later arguments over whether a message saying “go ahead” also meant acceptance of the price.

Payments should be linked to verifiable progress, such as completion of specified work stages, relevant tests or delivery of required documents, rather than calendar dates alone. You may be able to negotiate retention of part of the payment until listed defects have been rectified, but the percentage, duration and release conditions must be clear.

Do not assume that finding defects entitles you to withhold payment at will. Have a lawyer review the payment and dispute resolution arrangements, and confirm whether applicable construction payment rules affect the works contract.

4. Separate Acceptance Responsibilities and Put Safeguards in the Contracts

Acceptance involves at least three separate questions: whether the contractor has completed the agreed works, whether the franchisor confirms compliance with brand standards, and whether relevant statutory or landlord requirements have been met. A franchisor’s statement that the shop is “ready to open” should not automatically mean that all works are free from defects.

Before work starts, specify who will inspect it, which drawings and test results will be used, how defects will be recorded and when the contractor must rectify them. The handover checklist may also include as-built drawings, applicable certificates, maintenance information and contact details. For outstanding items, record the responsible party and completion deadline rather than signing a vague acknowledgement of receipt.

Hong Kong has no dedicated franchise legislation governing the parties’ rights and responsibilities, nor a franchise-specific statutory pre-sale disclosure regime. Franchise relationships are governed primarily by contract law, including common law and applicable legislation. Where a pre-contractual misrepresentation has occurred, the Misrepresentation Ordinance may apply, but the availability of remedies depends on the facts.

The fit-out itself may also be subject to the Buildings Ordinance, fire safety rules and other applicable requirements, which suitably qualified professionals should verify according to the nature of the works. Franchisees should not assume that the franchisor has taken on all legal responsibility simply because it recommended the contractor. Nor should a commercial franchise investment be treated as an ordinary consumer transaction.

Practical takeaway: Before paying, confirm the approved drawings, full quotation, variation procedure and acceptance checklist together, then ask a lawyer to check that the franchise agreement and works contract are aligned. Establishing who approves, who pays and who rectifies defects protects your opening funds more effectively than negotiating the price alone.