Buying a Franchise in Malaysia: Check Premises Upgrade Costs

The opening package price may not reflect the full financial commitment involved in maintaining franchise premises. If you are considering buying a franchise in Malaysia, check whether the contract requires refurbishment, replacement of finishes or design updates during the agreement term. The key questions are not simply how much it costs today, but who can require further work, when it must be done and how you will pay for it.

1. Identify what triggers an upgrade obligation

Distinguish routine maintenance from brand identity upgrades. Repairing a broken door is not the same as replacing an entire counter because the network’s design has changed. If both fall under a broad clause such as “keeping the premises in line with the latest standards”, the extent of your commitment may be difficult to estimate.

Ask the franchisor to identify the clauses that allow them to require physical changes. Look for references to premises specifications, refurbishment schedules and design appendices too. Do not rely solely on photographs of example outlets.

Ask the following questions:

• Are upgrades required on a schedule or whenever the brand concept changes?
• Could the opening of a new outlet nearby trigger a requirement to bring your design into line?
• Which components might need replacing: signage, furniture, flooring, lighting or counters?
• Who decides whether existing components can still be used?
• Are the notice period and completion deadline specified?

Ask for examples of previous upgrade specifications, if available, including the type of work and how long outlets had to close. This information can help you test your estimates, but it is not a guarantee that future costs will be the same. The condition and size of the premises, as well as building requirements, can lead to different costs.

2. Calculate the full cost, not just the contractor’s price

Prepare a dedicated cost sheet for a potential upgrade. The aim is not to predict the price precisely, but to ensure that no significant spending category is overlooked when deciding whether to buy.

Include design, building work, installation, transport, disposal of old materials and cleaning after the work. Also check whether building management requires a deposit for the works or contractors to work outside normal hours. Obtain confirmation for the actual premises; do not assume all buildings have the same requirements.

Beyond the project bills, estimate the operational impact. Rent and some wages may still need to be paid while the outlet is closed. Certain stock may need to be moved, stored or reduced before work begins. Reopening may also require additional preparation.

Build two scenarios: phased work while the outlet remains open, and a temporary full closure. For each, record cash outflows, potential effects on sales and expenses that could be avoided. Do not count all lost sales as a net loss, as some variable costs may also fall.

If additional finance is needed, assess whether cash flow after the work is completed will cover the repayments. Do not assume that a design change will necessarily increase sales or that a bank will agree to finance it. The decision must still make financial sense if sales do not rise.

3. Negotiate the approval process and allocation of costs

Upgrade obligations are easier to assess when the process is clear. Ask for a written scope of works before implementation, rather than simply an instruction to make the premises “look new”. It should distinguish between mandatory work, optional extras and repairs that are already your responsibility.

Safeguards you could discuss include:

• Advance notice that allows time for cash flow and operational planning.
• Phased implementation of non-urgent work.
• Permission to obtain several quotations from contractors who meet the specifications.
• A written approval process for additional work and cost increases.
• Allocation of costs when the franchisor requests changes after the design has been approved.

If only certain contractors are permitted, ask how their prices are reviewed and who is responsible for defective work. Make sure it is clear whether the works contract is with you or the franchisor, and to whom requests to rectify defects should be submitted.

Also consider how much of the franchise term remains when an upgrade is required. A substantial investment towards the end of the contract may be difficult to recoup. Ask whether a deferral, exemption or another arrangement could be agreed. Do not assume that spending on upgrades gives you an automatic right to contract renewal or compensation.

All these concessions are matters for negotiation, not standard rights necessarily available to every buyer.

4. Check the obligations in the documents before signing

Malaysia specifically regulates franchising through the Franchise Act 1998, as amended, including the 2020 amendments. Under Section 15, the franchisor must provide the prospective franchisee with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed.

Use that review period to identify premises-related spending obligations in the agreement and relevant appendices. Compare the opening package description with the clauses governing upgrades throughout the contract term. The absence of a figure for future costs does not necessarily mean there is no obligation to pay.

Ask a lawyer to assess the extent of the franchisor’s powers, the consequences of failing to complete the work and the legal standing of any negotiated cost limits. Any amendments or additional agreements should be documented appropriately and comply with the relevant legal requirements.

Practical takeaway: Before buying, make sure you understand what triggers an upgrade, the estimated full cost, the notice period and who pays. If the commitment remains open-ended without a clear process, resolve this before signing.