Managing Temporary Closures of Franchise Outlets

An established outlet may have to close temporarily because of flooding, building damage or disruption to essential facilities. Before franchising a business, owners need to decide how to handle these situations without immediately ending the franchise relationship. Clear temporary closure rules help protect customers, maintain relationships with franchise partners and ensure operational decisions do not depend on last-minute discussions when a problem arises.

1. Distinguish temporary closure from termination

A temporary closure suspends an outlet’s operations while particular conditions are addressed, but the contractual relationship remains in place. This differs from terminating the agreement, which ends the franchise relationship under the agreed terms. That distinction should be clear in the offering documents and draft agreement.

Indonesia’s specific legal framework for franchising is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It requires franchise agreements to cover, among other things, the parties’ rights and obligations, the business system, operational support, fee payment procedures and procedures for terminating the agreement.

Temporary closure provisions can clarify how these obligations are to be fulfilled. However, the procedures in this guide should not be described as mandatory clauses specifically required by that regulation. Their details are contractual arrangements that need to suit the nature of the business and undergo legal review.

Temporary closure should also be distinguished from force majeure. Not every closure automatically qualifies as force majeure, and using that term does not automatically remove all obligations. The cause, impact, evidence and contractual terms still need to be examined.

2. Define the triggers and notification process

List the circumstances that could halt operations. Draw on experience at your own outlets to identify genuine risks rather than simply copying generic clauses. For example, a food business may face refrigeration failures, while a service business may depend on the safety of its customer service premises.

Group closures into three categories:

• Safety emergencies: conditions that endanger customers or staff and require operations to stop immediately.
• Planned closures: repairs or maintenance that can be scheduled and discussed before the outlet stops operating.
• Closures ordered by the authorities: suspensions of operations that must be handled in accordance with the order and its conditions for resuming business.

In an emergency, internal procedures should not require the outlet manager to wait for commercial approval before protecting people and securing the premises. Once immediate safety measures have been taken, the franchisee should notify the franchisor through the agreed channels.

Specify the minimum information required in the notification: the time of the incident, the known cause, affected services, safety measures taken, supporting documentation and an initial estimate of the assistance needed. Distinguish confirmed facts from assumptions.

Also establish who receives reports, who acts as a substitute when the person responsible is unavailable, and how decisions are recorded. Notification deadlines should be agreed according to the business’s risks, rather than presented as a standard deadline prescribed by Indonesia’s franchising regulation.

3. Clarify costs and continuing obligations

Disputes often arise not from the decision to close an outlet, but from the bills that continue to arrive. Prepare a matrix of obligations during closure before recruiting franchise partners.

For royalties, distinguish turnover-based fees from minimum payments or fixed charges. If there are no sales, do not assume that all charges automatically stop. The agreement should explain how each component is treated, including how to request a deferral, reduction or waiver where these options are available.

Also review charges for system services, marketing, rent, maintenance and third-party subscriptions. A franchisor cannot promise to waive obligations owed to a landlord or service provider without an agreement with that party. Obligations towards employees must also be handled under applicable employment law, not solely under the franchise agreement.

Beyond financial matters, agree how to handle perishable goods, equipment security, system access and orders that customers have already paid for. Specify who will contact customers and who has authority to approve alternative fulfilment arrangements or refunds.

The franchisor’s support should be specific: for example, remote assessment of conditions, adjustments to deliveries or help with preparing a recovery plan. Avoid promising to cover all losses unless there is a mechanism and the capacity to honour that commitment.

4. Set reopening conditions and test the procedures

Do not simply state that the outlet may reopen when conditions return to normal. Specify evidence of recovery appropriate to the cause of closure, such as equipment inspection results, confirmation that facilities are fit for use, replacement of affected stock or compliance with requirements imposed by the authorities.

Explain who reviews the evidence and grants internal approval. The franchisor’s approval does not replace any government permits or approvals that are required. If shortcomings remain, draw up a list of corrective actions and assign responsibility for each.

Before offering franchises, run a simulation at your own outlet: assume that a key facility is unusable, then work through reporting, safety measures, cost calculations and reopening. Record any decision points that remain unclear so the procedures can be improved.

Ensure that closure-related obligations are explained consistently in the offering documents and the agreement. Government Regulation No. 35 of 2024 requires the franchise offering prospectus to be provided at least 14 calendar days before the agreement is signed. Use that review period to answer prospective partners’ questions, rather than making verbal promises that differ from the documents.

Practical step: prepare a single matrix covering closure triggers, reporting channels, treatment of costs, support and evidence required for reopening. Test it before applying it to franchise partners.