Upgrading franchise premises: who pays for the changes?

In your own business, you can decide for yourself whether to introduce a new interior design, alter back-of-house areas or replace equipment. When you build a franchise network, the same decision can mean compulsory expenditure for an independent business owner. Before signing your first agreement, therefore, establish which upgrades will be required, who will fund them and how much time franchisees will have to prepare. A clause requiring compliance with standards is no substitute for clear rules on investment.

1. Separate maintaining standards from new investment

Start by reviewing the changes you have made to your own premises. List repairs, cosmetic refreshes and larger refurbishments. For each item, identify the reason: wear and tear, a legal requirement, better customer service or a new brand concept. This breakdown will help you see which costs your future franchisees may genuinely face on a recurring basis.

Distinguish between three categories in your proposed franchise model:

• Routine maintenance — repairs and replacements needed to maintain the agreed standard, without significantly changing how the premises function.
• Compulsory upgrades — investment required by the franchisor, such as remodelling the customer service area to reflect a new concept.
• Optional improvements — changes that franchisees can introduce after assessing their usefulness and cost.

Do not automatically classify every equipment replacement as routine maintenance. Replacing working equipment with a more expensive model solely because of a new concept can impose a very different burden from repairing a fault. Set out separate expenditure approval and funding arrangements for each category.

Prepare examples of borderline cases too. Replacing a damaged worktop with an equivalent is not the same as requiring the entire counter to be rebuilt. Such examples help prevent conflicting interpretations before the first invoice arrives.

2. Set out the contractual basis for changes

Poland has no standalone act comprehensively regulating franchising. A franchise agreement is an ‘innominate contract’ — one not defined as a specific contract type in legislation — and its terms are governed primarily by the Polish Civil Code. Under Article 353¹, the parties may structure their legal relationship as they see fit, provided it does not conflict with the law, the nature of that relationship or the principles of social conduct.

Nor is there a specific compulsory register of franchise networks or a statutory pre-contractual disclosure regime dedicated to franchising. This does not, however, give franchisors free rein in how they present future costs. General rules governing negotiations and the formation and performance of contractual obligations remain relevant. Depending on the scope of the changes, building, fire safety and sanitary regulations may also apply.

The right to update standards should not be treated as unlimited authority to impose costs on franchisees. Rather than relying on a broad clause, work with a lawyer to establish a mechanism covering:

• the reasons that justify a compulsory upgrade;
• the types of work covered by that obligation;
• how notice will be given and completion deadlines set;
• how costs will be shared and estimates approved;
• what happens if there are technical obstacles or the landlord refuses consent.

The operations manual may specify how work should be carried out, but it should not be used to bypass agreed financial limits. Check that the documents are consistent: franchisees must know whether they are receiving instructions for fulfilling an existing obligation or a proposed change requiring a separate agreement.

3. Calculate the full cost and test the change at your own outlet

Before imposing a new solution, test it at an operating company-owned outlet. The aim is not to reassess the entire business model, but to evaluate the specific investment: whether it improves operations, what disruption it causes and how much it really costs to implement.

The cost estimate should cover more than equipment and contractors. Include design, transport, removal, disposal, alterations to building services, any necessary approvals and arrangements for operating during the refurbishment. Separate capital expenditure from the costs of downtime, and do not present projected sales growth as a guaranteed return on investment.

If conditions at your own outlet differ from those at a franchisee’s premises, make that clear. Upgrading premises owned by the franchisor will not reflect all the difficulties of refurbishing rented space. Technical constraints, permitted working hours and obligations to reinstate the premises to their previous condition may all matter.

Decide how the work will be funded too. Options to consider include a contribution from the franchisor, phased work or a temporary reduction in certain fees. None applies automatically: each requires a clear agreement, arrangements for settling costs and a review of the tax implications.

4. Adapt the timetable to the franchisee’s circumstances

A consistent standard does not have to mean an identical refurbishment date for every outlet. Set objective criteria for deciding the order of work: the condition of the premises, seasonal sales patterns, contractor availability and the time remaining on both the franchise agreement and the lease.

An expensive upgrade shortly before the franchise relationship ends calls for particular care. Do not promise franchisees that the investment will ‘pay for itself after renewal’ if renewal has not been agreed. Consider postponement, a reduced scope of work or a separate funding agreement. Do not assume that either the franchisor or the landlord will automatically reimburse the expenditure.

Before work begins, give the franchisee a single, clearly organised information pack covering the reasons for the change, scope of work, cost estimate, timetable, allocation of responsibilities and criteria for signing off the completed work. Appoint someone with authority to approve deviations. Document any changes to the scope during the refurbishment, together with their effect on the price and completion date.

Practical takeaway: prepare your upgrade policy and an illustrative cost estimate before signing your first agreement. A franchise network needs shared standards, but it also needs predictable investment obligations.