Franchise Site Approval and Permits in South Korea: What to Check Before Signing a Lease

Even if you have found a brand and premises you like, do not rush into signing a lease. The franchisor’s site approval, the building’s permitted use and the notifications or permits required to operate are separate matters. Before joining a franchise network, you need to ask not only ‘Is this a good location?’ but also ‘Can I legally open here on the agreed date?’ Crucially, your franchise agreement and lease are contracts with different parties.

1. Establish what the franchisor’s site approval actually covers

When a franchisor approves premises, this generally means that the site meets the brand’s location criteria. Even if it has assessed the local market, floor area, layout and frontage, this does not guarantee that the authorities will accept your business notification or that the landlord will consent to building works. If a representative says ‘This site will work’, ask exactly what checks underpin that judgement.

The approval document should specify the premises’ address and floor, the area to be used, any conditions and the approval’s validity period. Check whether approval can be withdrawn following an on-site survey or enquiries with the authorities. Distinguishing between a suggested location, conditional approval and final approval will help you plan when to sign contracts and commit funds.

Ask the franchisor to provide the following in writing:

• What was actually checked during the site inspection, and what remains unchecked
• Who will verify the building’s permitted use and whether the required business notification can be accepted
• The findings of checks on facilities such as extraction, water supply, drainage and electricity
• The procedure for choosing another site if the approval conditions cannot be met
• Any sums said to be payable before final approval, and the basis for requiring them

Do not rely solely on replies from the sales representative: obtain confirmation from the department authorised to approve sites. If the franchisor outsourced its investigation, check the scope and exclusions of the resulting report. It is safer not to assume that a brief statement such as ‘Site inspection completed’ means every risk has been assessed.

2. Verify the disclosure document and site-specific regulatory requirements separately

Franchise transactions in South Korea are governed by the Fair Transactions in Franchise Business Act. This legislation sets out requirements including the registration and provision of franchise disclosure documents and prohibitions on unfair trading practices. Disclosure documents are registered with the Korea Fair Trade Commission or the relevant metropolitan or provincial authority. Registration does not mean that the government has certified a particular site as suitable for trading or endorsed the investment as safe.

Read the opening procedures and estimated timescales in the disclosure document alongside the agreement’s opening obligations and requirements for securing premises. Ask whether the standard timetable allows for a change of building use, additional works or requests from the authorities for further information or remedial action. Also distinguish between the legal requirements in force when you sign and the terms of your actual contract.

Separate legislation applies to individual premises. For example, depending on the type of food business, you will need to check notification or permit requirements and facility standards under the Food Sanitation Act. The building’s permitted use is checked under the Building Act framework, while fire safety requirements may vary according to the business type and the characteristics of the premises. Do not assume that every restaurant follows the same procedure.

Prepare the building register, floor plans, proposed menu and cooking methods, and details of the floor and area you intend to use, then contact the relevant departments at the local district office. Consult the local fire station where necessary. Keep a record of the consultation date, documents submitted and responses received, but remember that preliminary advice does not replace a formal decision by the authorities.

3. Check the conditions for using the building before signing the lease

Read the estate agent’s property verification and explanation statement and the building register, and compare them with the actual condition of the premises. The fact that a restaurant previously operated there does not mean that your new brand’s operating model will also be permitted. If the business category, cooking facilities or extraction route changes, the conditions you need to verify may change too.

Give the landlord a detailed description of your proposed business. Rather than simply calling it a ‘café’, specify whether you will cook on site, your expected opening hours, signage locations and any external pipework or ducting. If the works involve communal areas, check whether building management rules or further approval procedures apply in addition to the landlord’s consent.

In particular, avoid leaving the following as verbal promises:

• Where brand signage and external equipment may be installed
• The extent of the landlord’s and building management’s consent to the necessary works
• Who will apply for any required change of use, and who will bear the cost
• Permitted dates and hours for works, and restrictions on using shared facilities
• The scope of removal and reinstatement obligations at the end of the lease

The franchisor’s site approval does not bind the landlord, and the landlord’s permission to use the premises does not replace the authorities’ decision. Do not treat these three parties’ confirmations as a single approval. Even if the landlord permits particular works, opening may still be difficult if those works are technically unfeasible. Arrange an on-site assessment by relevant specialists where necessary.

4. Align both contracts on what happens if opening is impossible or delayed

One of the riskiest situations is being liable for rent before the franchisor has granted final approval or before preparations for the business notification are complete. If the franchise agreement has an opening deadline and the lease has a separate rent commencement date, the same delay can create liabilities under both contracts.

Before signing, draw up a chronological schedule. List franchisor approval, lease signing, design finalisation, the necessary administrative procedures, the start of works, final inspections and the planned opening date. For each stage, identify the person responsible, required documents, prerequisites and scheduled payments. If substantial, difficult-to-recover spending is due before the necessary checks are complete, revise the sequence.

Special clauses should be more specific than ‘The contract will be cancelled if permission is refused’. Define the proposed business, the circumstances that allow termination, the deadline for completing checks and the method of giving notice. Separately negotiate whether security deposits and initial contract payments will be refunded, and how design and construction costs already incurred will be handled.

Ask for the franchise agreement to specify when you may change premises or extend the opening deadline. A refund clause in the lease will not automatically entitle you to recover money paid to the franchisor. These clauses are subject to negotiation, and the law does not guarantee the same refund outcome in every case. Have a lawyer or a qualified franchise transaction adviser in South Korea review the wording before you sign.

5. Budget separately for opening delays

Before opening, you may incur rent, service charges, loan interest and staff costs without generating any revenue. Do not treat your contingency reserve simply as a percentage of construction costs. Model delay scenarios using the fixed outgoings you will actually pay each month. Comparing your planned opening date with the date your funds would run out will show how much delay you can withstand.

If you intend to borrow, confirm the lender’s drawdown conditions and required documents. Do not treat an indicative borrowing limit discussed during an initial consultation as secured funding. If a loan product requires a signed lease or business registration, list separately the amounts you will have to commit before the funding is secured.

If checks are delayed, write to the person responsible, setting out the outstanding issues, the deadline for a response and whether further spending will be put on hold. Keep approval documents, site photographs, records of consultations with the authorities, revised contracts and proof of payments in date order. If a dispute arises with the franchisor, you may consider franchise dispute mediation through the Korea Fair Trade Mediation Agency. A dispute with the landlord, however, may need to be handled separately.

Key action: Before paying a deposit on premises, cross-check the scope of the franchisor’s approval, the required administrative procedures and the landlord’s consent. Then record separately in both the franchise agreement and the lease what will happen if opening proves impossible or is delayed.