Hong Kong Franchise Opening Deadlines: Agree Delay Responsibilities, Extension Rights and Fee Start Dates Before Signing

If you are considering joining Hong Kong’s franchise market, look beyond brands and franchise fees and ask: is the opening date specified in the agreement actually achievable? In a case featured in the Trade and Industry Department’s “Ask the Experts” service, an entrepreneur hoping to introduce a Japanese pancake and drinks brand was advised to pay attention to the opening deadline. Finding premises, negotiating a lease, completing the fit-out and securing approvals are all interdependent. An overly rigid deadline could leave you at risk of breaching the agreement before you even start trading.

1. Break the opening commitment down into a verifiable timetable

Do not settle for a clause simply requiring you to “open within a specified number of days of signing”. First, work with the franchisor to list the necessary steps, including confirming the premises, taking possession, obtaining approval for plans, completing the fit-out, receiving equipment, securing the required licences and fire safety approvals, and carrying out pre-opening inspections. For each step, specify who is responsible, which documents are needed, the expected completion date and any prerequisites.

In particular, distinguish between tasks that can run in parallel and those that must wait for an earlier stage to be completed. For example, a contractor may be unable to finalise construction arrangements until the franchisor has approved the design. A late handover of the premises may also affect measurements and equipment installation. Ask relevant professionals to assess the timetable against the actual condition of the premises, rather than simply adopting the brand’s overseas opening schedule.

Before signing, clarify at least three points:

• When does the clock start? On the signing date, the premises handover date, or the date when all necessary conditions have been met?
• What counts as opening? Does a soft opening count? Must all necessary approvals and the franchisor’s written confirmation be obtained first?
• Is there a final deadline? If that date is missed, will there be a further extension, renegotiation, or a right to end the proposed opening arrangements?

The definition of opening must not require the franchisee to begin trading before meeting statutory requirements. Contractual commitments cannot replace government approvals.

2. Define extension rights according to the cause of delay

Hong Kong has no franchise-specific legislation, nor generally applicable statutory franchise disclosure requirements, franchise registration requirements or a mandatory franchise code of conduct. Opening deadlines and extension rights depend primarily on the agreement and are governed by common law contract principles. Misrepresentation may fall within the Misrepresentation Ordinance, while exclusion or limitation of liability clauses may be subject to the Control of Exemption Clauses Ordinance, depending on the wording and circumstances of the transaction.

Do not therefore assume that a delay in obtaining approval automatically excuses you from liability. Nor should you assume that a broadly worded force majeure clause necessarily covers labour shortages, supply delays or government processing times. A more practical approach is to address the following separately in the agreement:

• Delays caused by the franchisor: For example, late submission of plans, delayed design approval or failure to arrange inspections. Specify the corresponding deadline extensions and how fees will be handled.
• Delays caused by the franchisee: For example, submitting information late. Set out notification requirements, procedures for remedying the delay and reasonable consequences.
• Delays beyond either party’s full control: For example, an application that has been properly submitted but is still awaiting approval. Agree what evidence is required, what steps must be taken to mitigate the impact and how an extension will be granted.

Seek extension rights triggered by objective conditions, rather than leaving them entirely to the franchisor’s discretion. Deadlines for requesting an extension must also be realistic, so that the notification window has not already closed by the time you discover the problem.

3. Link the franchisor’s obligations to fee start dates

The franchisee’s opening deadline is often clearly defined, while deadlines for the franchisor to respond may be missing altogether. Ask for response times for site selection, design approval, confirmation of equipment specifications and inspection arrangements to be included in a schedule to the agreement. It should also require specific reasons to be given when submissions are returned for revision. Matters involving safety or statutory requirements should not rely solely on a provision that treats silence after a deadline as approval.

Check the start date for each fee as well. Do fixed management fees, system fees, minimum royalties or other recurring charges begin immediately after signing, or only once the business actually opens? Can charges be suspended if a delay caused by the franchisor prevents opening? How will payments for services not yet provided be accounted for? These points should all be agreed before signing.

Also check whether the franchise term runs from the signing date. If preparations take longer than expected, the period available for actual trading may shrink. You could negotiate for the operating term to begin on the opening date, or for the expiry date to be extended in the delay scenarios specified in the agreement.

The lease is a separate contract. Even if the franchisor agrees to an extension, the landlord will not automatically extend the rent-free period. List potential costs such as rent, storage and contractors’ standby charges separately, and agree which delay-related costs can be recovered and what evidence is required. Do not assume that the franchisor will cover them all.

4. Establish written extension and final resolution procedures

Once preparations begin, retain premises handover records, application receipts, versions of plans, the franchisor’s responses and records of construction progress. Update the timetable regularly. If a delay emerges, send notice using the method and recipient specified in the agreement, explaining the cause, the stages affected, the expected impact and proposed remedial action.

A verbal assurance from the franchisor that “a little later is fine” does not necessarily amount to a valid amendment of the agreement. Written confirmation should specify the revised opening date, when fees will start, whether the franchise expiry date will change, and the extent to which the relevant delay will not give rise to a separate breach claim.

If the business still cannot lawfully open by the final deadline, there should be clear arrangements for resolving the situation. These should cover whether the project can be discontinued, how payments for services not provided will be settled, and who will deal with equipment already ordered and designs already completed. These arrangements address a proposed opening that fails to materialise; they should not be left for negotiation until both parties have committed substantial funds.

Practical takeaway: Before signing, prepare an opening timetable, a list allocating responsibility for delays and a schedule of fee start dates, then ask a Hong Kong lawyer to check them against the agreement. A workable opening deadline must be agreed alongside the parties’ supporting obligations, extension rights and cost arrangements.