Buying a Franchise in India: Check Refit Costs, Not Just Renewal Terms

The initial cost of a franchise may appear to include the shop fit-out and equipment, but replacing them a few years later could be an additional expense. A new counter, a different colour scheme or new equipment could affect your financial projections. Before entering the Indian franchise market, understand how far your responsibility to maintain the brand’s appearance standards extends, and what financial limits apply.

1. Distinguish routine maintenance from a full refit

A contractual requirement to ‘maintain the premises in accordance with brand standards’ may extend beyond minor repairs. It could include replacing furniture, lighting, the shopfront and equipment. Do not treat the initial fit-out figure quoted in the sales presentation as the total cost for the entire contract term.

Ask the brand for three separate lists of costs:

• Routine maintenance: Cleaning, paint touch-ups and repairs to faulty components.
• Scheduled replacements: Replacing furniture, décor or equipment at set intervals.
• Major redesigns: Adopting a new brand identity or shop design.

For each list, get written confirmation of when the work will be required, who will make that decision and who must pay. If the wording says ‘as needed’, ask what objective criteria will determine the need. Must working equipment be replaced simply because a new model is available, or will its usefulness and condition also be considered?

Ask existing franchisees about actual invoices and how long the work took. Their experience provides useful guidance, but it does not guarantee that your outlet will incur the same costs. Size, location and the condition of the existing premises may differ.

2. Understand whether your rights come from law or the contract

India has no dedicated, comprehensive central franchise law, mandatory franchise-specific pre-sale disclosure document or central franchise registration system. Nor is there a general statutory code of conduct specifically for franchising. Do not therefore assume that you will automatically receive a standardised breakdown of future refit costs.

The Indian Contract Act, 1872 provides the main legal framework for contract formation, free consent, performance, breach and remedies. Rules on fraud and misrepresentation are also relevant. If a representative says that ‘there will be no further building costs’, ask for written support for that statement and check it against the final agreement.

Read the design manual and operating instructions as well as the franchise agreement, particularly where they are incorporated into the contract. It should be clear which terms take precedence if the documents conflict. Brand approval is not a substitute for compliance with local building, fire safety or other applicable rules. If the premises are leased, the landlord’s consent may also be required for proposed alterations.

Do not assume there is a universal statutory cap on refit costs. Negotiate your own limits, notice periods and approval procedures.

3. Calculate the total impact, not just the building bill

Prepare a written cost breakdown. List design fees, materials, labour, transport, installation, taxes and the removal of old fittings and equipment separately. Deduct the estimated resale value of old equipment only where there is a realistic basis for doing so; do not assume the brand will buy it back.

If the shop closes fully or partly during the work, rent and other fixed payments may continue. Ask which fees remain payable during the closure and whether any payment relief will be agreed in writing. Show the potential impact of reduced sales separately from the cost of the work.

Then test two scenarios: completion within the expected timeframe, and work taking longer than expected. In each case, compare the cash required with the funds available. Do not count on future borrowing or financial support from the brand unless the terms are clear.

Also consider the remaining contract term. If a major refit is required shortly before the agreement expires, how much time will you have to benefit from that investment? Ask for a written option to defer, cap or share the cost in those circumstances.

4. Agree the spending process before signing

When negotiating with the brand, simply agreeing to ‘reasonable costs’ is not enough. Propose a process under which the design, scope of work, cost estimate and timetable are provided before work begins. Also agree how additional spending outside the approved scope will be authorised.

Get clear answers to these questions:

• What will be the minimum interval between major changes?
• Whose approval will be needed if spending exceeds the agreed limit?
• When will you be allowed to retain safe, working equipment?
• Who will inspect the quality of the work, and who will pay to put defects right?
• How will compliance deadlines change if work is delayed or approval is not obtained?

Obtain a signed addendum rather than relying on verbal concessions. Ask a lawyer to review your obligation to bear the costs, and an accountant to assess the cash-flow and tax implications.

Practical takeaway: Before buying a franchise, ask what must be replaced, when, with whose approval and up to what cost. An attractive initial fit-out budget is only useful if responsibility for future changes is also clear.