Changes to Franchise Standards: How to Keep Costs Under Control

Prospective franchisees usually assess the cost of opening, but are much less likely to consider the cost of future changes. Yet a new interior, replacement equipment or revised service procedures can require additional investment long before an outlet has paid for itself. Updating standards is a normal part of a brand’s development. The buyer’s task is to establish in advance which changes are mandatory, who pays for them and how much time is allowed for implementation.

1. Find out which documents can change your obligations

Start not by asking how often the franchisor updates its design, but by requesting a list of the documents your outlet must comply with. Requirements may appear in the agreement, its schedules, the operations manual, brand guidelines and separate technical standards. Pay particular attention to any obligation to comply with ‘all current standards of the rights holder’: this may cover not only the rules you have already seen, but also future versions.

In Russia, commercial concession agreements—the legal framework used for franchising—are governed by Chapter 54 of the Russian Civil Code. Under Article 1032, the user of the rights must follow the rights holder’s instructions and directions intended to ensure that the nature, methods and conditions of use of the package of exclusive rights match the rights holder’s own use. This includes directions on the external and internal appearance of commercial premises. It is therefore risky to assume that mandatory updates can simply be ignored.

However, an instruction on how to use the brand is not the same as a change to the terms of the agreement. Whether obligations may be changed unilaterally depends on Article 310 of the Russian Civil Code, the wording of the agreement and the nature of the particular requirement. In business-to-business relationships, the agreement may grant a right to change terms unilaterally. Such a clause should not be treated as a harmless formality.

Before signing, request:

• a list of mandatory standards, with dates and version numbers;
• the procedure for adopting and communicating new requirements;
• a list of those authorised to approve changes;
• the contractual provisions allowing standards to be changed without your consent.

Record the initial versions of the documents in a schedule to the agreement or an agreed electronic archive. Otherwise, it may be difficult later to establish which requirements applied when you bought the franchise.

2. Look at the history of updates, not just the current interior

Russia does not require a specific pre-contractual franchise disclosure document containing a statutory list of information. However, general rules on good faith in negotiations apply, including Article 434.1 of the Russian Civil Code. The absence of a prescribed disclosure format does not mean that parties may knowingly provide false information.

Ask the franchisor to show you several recent updates: what changed, which outlets were affected, how much time franchisees were given and what costs they incurred. If the figures relate to individual premises, check their floor area, outlet format and equipment condition; without this context, comparisons tell you little.

With existing franchisees’ consent, discuss not only the final cost but also the operational impact. Did they have to close their outlets? Could changes be introduced in stages? Were equivalent technical solutions accepted? Did previously agreed exemptions remain in place?

Ask separately about plans that have already been approved but not yet implemented. Buying equipment just before its replacement becomes mandatory means paying twice. Request written confirmation of whether any such decisions exist on the date the agreement is signed. This does not guarantee that standards will remain unchanged; it records the position known to the parties at that point.

3. Agree how costs will be shared

The phrase ‘updates are carried out at the franchisee’s expense’ does not answer the main questions: how extensive they may be, how often they may occur and what procedure applies. Rather than proposing a blanket ban on changes, suggest distinguishing between them according to their impact.

Routine operational changes. An example would be a new product display arrangement that does not require additional furniture. These could be covered by a simplified notification process and a reasonable implementation period.

Changes involving capital expenditure. Replacing furniture, refurbishing premises or installing new equipment should be supported by a technical brief, a list of required outcomes and an initial cost estimate. Expenditure above an agreed threshold could be made subject to a separate written agreement.

Urgent changes. Legal requirements and safety measures cannot be postponed simply because the agreement protects your investment budget. However, it is important to distinguish between a genuine legal requirement and a commercial decision by the brand that has been labelled urgent.

Discuss a protected period after opening: for an agreed length of time, working equipment and an approved interior would not have to be replaced solely to accommodate a new concept. Any exceptions should be set out separately. It is also useful to agree how recently completed work will be credited towards new requirements, how changes can be phased in and whether the rights holder will contribute to the costs.

Any thresholds and time limits are matters for negotiation, not statutory concessions for franchisees. They need to be included in the documents you sign, rather than left in correspondence with a manager.

4. Define the process for implementation and objections

Even an agreed budget will not protect you from a demand to refit an outlet within a few days. Specify that the implementation period starts only once you have received the complete set of documents: the revised standard, the technical brief and a description of the work required. Allow time for design, deliveries and approvals where necessary.

Include a right to propose an alternative solution that delivers the required quality and appearance at a lower cost. Set a deadline for considering the proposal and a process for providing a reasoned response. The rights holder’s silence should not automatically be treated as consent unless this mechanism has been expressly agreed.

It is also useful to establish a procedure for discussing disputed updates and the conditions for extending deadlines. Raising an objection does not normally suspend the obligation to comply: any right to suspend implementation, and its limits, must be agreed separately in line with the law. Work affecting safety requires particular care.

Practical takeaway: before buying a franchise, document the initial standards, the procedure for changing them and the rules for paying for costly updates. Predictable future investment requirements matter more than a verbal assurance that the brand ‘rarely changes anything’.