How to Set Temporary Closure Terms for a Franchise in India

When turning an existing business into a franchise, planning for normal trading conditions is not enough. Flooding, fire, loss of access to the premises or a government order could temporarily halt operations. Who must notify whom, which payments will continue, and when will the outlet reopen? Clear temporary closure terms help maintain trust across the franchise network and avoid rushed decisions during a crisis.

1. Distinguish temporary closure from events beyond your control

Not every closure should be treated as the result of an event beyond the parties’ control. The agreement should distinguish between routine operational problems, a party’s failure to meet its obligations and genuinely external disruption. Staff absence, a local power outage and a widespread natural disaster may have different effects and require different responses.

A contractual provision covering unforeseen events beyond the parties’ control is often called a ‘force majeure’ clause. Rather than simply using that label, specify which events the provision covers and which obligations must actually be affected for it to apply.

Draw on experience at your existing outlet to list possible scenarios. For each one, record:

• Whether operations would stop completely or only some services would be suspended.
• Whether alternative arrangements could keep the business running.
• Who is responsible for preventing the event or reducing its impact.
• What evidence is needed to request relief.

Do not automatically treat low sales or a shortage of funds as an external disruption. Difficult trading conditions are not the same as being unable to fulfil an obligation.

2. Ground any relief in Indian law

India has no separate, comprehensive franchise law, mandatory franchise code of conduct or central franchise registration system. Nor is there a franchise-specific requirement to provide or file a prescribed disclosure document before selling a franchise. General rules on misrepresentation, fraud and free consent nevertheless apply.

The principal legal basis for contractual temporary closure arrangements is the Indian Contract Act, 1872. Clauses providing relief when a specified event occurs may generally be assessed under Section 32 of the Act. Outside the contractual provisions, Section 56 may be relevant where performance subsequently becomes impossible or unlawful. Its application is limited and depends on the facts; higher costs or lower profits alone are not enough.

Do not therefore assume that every disaster automatically waives fees, or that every government restriction automatically terminates the agreement. Rent, obligations towards employees, taxes and local safety rules may apply separately. An agreement between a franchisor and a franchisee does not alter the rights of a landlord or government authority. Have the proposed terms reviewed by a specialist in Indian law.

3. Set out notification and loss-mitigation procedures

Waiting for a formal letter during a crisis is not practical. Designate contacts for immediate notification and establish a process for providing written details afterwards. Set realistic notification deadlines and allow for communication networks being unavailable.

The written account should cover the event, affected services, likely duration, immediate safety measures and available evidence. Depending on the circumstances, a government order, a notice from building management or a repair assessment may be useful. Pressure to gather unnecessary documents should not delay safety measures.

Set out each party’s responsibilities separately. The franchisee should secure the premises, protect stock and identify affected customers’ outstanding orders. The franchisor should provide alternative supplies, technical support or approved customer communications where feasible and agreed.

Also clarify who can authorise operations from another location or with a limited service. Such authorisation does not replace any required licences or safety approvals.

4. Specify how payments will be handled during closure

Wording such as ‘payments during closure will be agreed later’ invites disputes. State how each payment will be treated: whether it will continue, be deferred, be reduced or be waived in specified circumstances.

Distinguish between sales-based royalties and minimum fixed payments. Zero sales do not automatically remove a minimum payment obligation. Technology subscriptions and the costs of other continuing services also need separate consideration.

Do not describe a deferral as a waiver. If outstanding amounts must be paid later, specify what triggers repayment, the instalment arrangements and any applicable interest. Keep amounts due before the event separate from payments relating to the closure period. Both parties should retain written approval of any relief and a revised statement of amounts due.

5. Agree reopening criteria in advance

Do not make reopening dependent solely on a calendar date. Where required, operations should resume only once premises safety checks, relevant approvals, equipment inspections and checks on perishable stock are complete. Specify in advance who will carry out the review and how quickly they must reach a decision.

If the disruption continues, conduct joint reviews at agreed intervals. Record decisions on partial operations, additional support or further contractual options; do not allow an indefinite closure to continue without review.

Practical takeaway: Before granting your first franchise, test your arrangements against a hypothetical closure. If responsibility for notification, safety, payments and reopening is unclear, revise the agreement now.