Franchising: who pays if opening is delayed?

Joining a franchise network means coordinating people, deliveries and decisions before welcoming your first customer. But what happens if the planned opening date slips? Rent, staffing costs and certain contractual fees may become payable even when there is no revenue coming in. Before choosing a brand, check how the contract allocates this risk: a promise of a ‘turnkey’ opening is not enough.

1. Separate signing, the contract’s start date and opening to the public

The franchisor’s proposed timetable may show a single opening date. The contract, however, may specify several separate milestones: signing, the agreement taking effect, handover of the premises, completion of the fit-out, training and the start of trading. Do not assume that all financial obligations begin with your first sale.

In Italy, franchising is governed by Law No. 129 of 6 May 2004. Article 3 requires the contract to be in writing to be valid. It also requires the contract to specify, among other things, the investment required, any entry fees, and how royalties are calculated and paid. However, it does not provide for automatic, standard compensation for every delay in opening: the contractual terms, the causes of the delay and the general rules on contractual liability must all be examined.

Ask for the following to be set out in writing:

• the date on which the contract takes effect;
• the opening deadline and whether it is binding or indicative;
• the date from which each recurring payment becomes payable;
• how a postponement affects the time available to operate the business.

If the contract takes effect on signing, a delay could use up part of its term before you even open. This is something to negotiate, not a consequence to discover once work has begun.

2. Build a timetable with clear, verifiable responsibilities

A useful timetable does more than list deadlines: it assigns responsibility for each stage, identifies the document confirming completion and sets out the conditions needed to proceed. The aim is to establish which activities depend on the franchisee, which on the franchisor and which on external parties.

For example, the design may need approval before fixtures and fittings can be ordered; equipment may need to be available before practical training can be completed. If an early decision is delayed, subsequent dates may become unrealistic.

Prepare a shared table with five columns: activity, responsible party, deadline, prerequisites and evidence of completion. Include a deadline for the franchisor to respond to approval requests. Requiring the franchisee to submit documents promptly is operationally unbalanced if the other party has no deadline for responding.

For suppliers nominated by the brand, check who signs the order and who commits to the delivery dates. A franchisor’s nomination of a supplier does not necessarily amount to a guarantee of its delivery times. Also ask who can authorise alternatives if a delivery puts the timetable at risk.

3. Calculate the cost of the period without sales

Your financial assessment should isolate the cost of the delay compared with the original plan. There is no need to invent a standard percentage: use actual quotations, contracts and payment dates.

Work with your accountant to prepare two scenarios: opening on the planned date and opening later. In the second, focus particularly on:

• rent and other premises charges already payable;
• the cost of staff hired before trading begins;
• utilities, services and subscriptions already activated;
• any fixed fees payable to the franchisor;
• interest, storage of goods and rescheduling deliveries.

Distinguish additional costs from payments that simply fall due before revenue starts coming in. A planned expense may not increase the project’s total cost, but it can tie up cash at the wrong moment.

Then bring this analysis to the negotiating table. You could ask for certain fixed fees to become payable only once the business actually opens, or to be suspended if the franchisor has not fulfilled an obligation essential to opening. These terms must be expressly agreed: they are not automatic rights available to every franchisee.

4. Agree how delays will be managed

The contract should set out a practical procedure: prompt notice of the obstacle, an explanation of its causes, an updated timetable and measures to limit the consequences. Avoid wording that treats every delay in the same way, regardless of who caused it.

Ask your lawyer to distinguish at least three situations: a delay attributable to the franchisee, a breach by the franchisor and an external obstacle. For each, check how deadlines and payments change, what evidence to retain and what happens if opening remains blocked beyond an agreed deadline. Do not assume that an external obstacle automatically suspends every obligation.

Article 4 of Law No. 129/2004 requires the franchisor to provide a complete copy of the contract and the required annexes at least thirty days before signing, subject to the exceptions set out in that provision. Use this period to check that the timetable and negotiated terms have actually been incorporated into the contractual documents.

In practice: before signing, obtain a timetable allocating responsibilities, a breakdown of the costs of postponement and written terms governing delays. An attractive target opening date is no substitute for a clear contractual commitment.