Franchise downtime: what to agree before buying

An operating outlet may need to close temporarily because of an emergency, building repairs or supply disruptions. But stopping sales does not, in itself, put the franchise agreement on hold. Before buying, you need to understand which obligations continue, how much downtime will cost and how you can resume trading. For everyone involved in franchising, clear rules on temporary closure help preserve relationships without unexpected debts.

Why a closed outlet may still have to pay

In Russia, franchise relationships are specifically governed by Chapter 54 of the Russian Civil Code, which deals with commercial concessions. Where a buyer is granted a package of exclusive rights that includes the right to use a trade mark, these provisions must be taken into account. The title of the agreement is no substitute for examining its substance. A commercial concession agreement must be in writing, and the grant of the right to use that package of exclusive rights must be registered with Rospatent, Russia’s intellectual property office.

One general rule is particularly important for temporary closures: simply not using the rights granted does not release the franchisee from paying the fees. This approach is reflected in paragraph 40 of Resolution No. 10 of the Plenum of the Supreme Court of the Russian Federation, dated 23 April 2019. Assuming that ‘there are no sales, so there is nothing to pay for’ can therefore lead to arrears.

The consequences depend on how fees are calculated. A percentage of zero revenue produces a different result from a fixed monthly fee. If the agreement includes a guaranteed minimum payment, this may continue to accrue even when there are no sales. Check charges for software, advertising activities and other mandatory services separately.

Before signing, ask for a calculation of the cost of one full month of closure under the draft agreement. Ask the brand’s representative to identify every charge that would continue and the corresponding clause. A verbal assurance that ‘we are flexible in these situations’ is no substitute for an agreed procedure.

Distinguish between reasons for closure and set out the notification process

The agreement should distinguish between at least three situations: a voluntary break chosen by the franchisee, a shutdown caused by external circumstances, and an inability to operate because the franchisor has breached its obligations. These do not necessarily need to have the same financial consequences.

Planned refurbishment, for example, can be agreed in advance. In an emergency, notice may have to be given after trading has stopped. If the outlet has closed because the franchisor failed to provide a resource required under the agreement, a lawyer should assess the consequences of that breach separately. It should not automatically be treated as an ordinary voluntary closure.

The draft agreement or a schedule should ideally specify:

• which events allow the temporary closure procedure to be triggered;
• when notice alone is sufficient and when the rights holder’s consent is required;
• where notice must be sent and what supporting documents are needed;
• how long the franchisor has to respond;
• how the initially agreed closure period can be extended;
• what happens if no response arrives on time.

Do not assume that every emergency will automatically qualify as force majeure. Under Article 401 of the Russian Civil Code, force majeure is assessed in light of the specific circumstances. Relief from liability for a breach does not automatically extinguish a payment obligation. A lack of funds does not, in itself, qualify as force majeure.

Agree specific financial arrangements for downtime

The aim of negotiations is not to secure vague promises of ‘support’, but to establish a clear, verifiable basis for calculating payments. You could propose a temporary reduction in fixed fees, a waiver of the minimum payment or a payment deferral. These are contractual arrangements, not automatic rights that arise whenever an outlet closes.

Distinguish between three mechanisms. A waiver means that an agreed amount for a specified period does not have to be paid. A deferral postpones the payment deadline but leaves the debt in place. A discount reduces the charge according to an agreed formula. Saying that ‘payments are frozen’ does not explain which option the parties have chosen.

Record when the concessionary arrangements begin, when they end and how charges will be calculated for part of a month. Separately clarify whether contractual penalties will accrue on deferred amounts and when any accumulated debt must be repaid. Otherwise, reopening could coincide with a large payment falling due before revenue has recovered.

Also check obligations outside the franchise agreement: rent, payments to employees, loan repayments, security and stock storage. The franchisor’s agreement to a pause does not change your contracts with other parties. Draw up a separate downtime budget rather than simply reducing forecast sales to zero.

Set clear conditions for resuming trading

A temporary closure needs a defined process for bringing it to an end. Before buying, establish whether it is enough to notify the brand that the cause of the shutdown has been resolved, or whether the premises, equipment and compliance with standards must be inspected. If an inspection is compulsory, agree the timescales, required documents and procedure for addressing any issues identified.

Discuss who pays for a specialist’s return visit, whether further training will be needed and which requirements apply after a prolonged break. Do not leave room for an unspecified ‘relaunch fee’ without an agreed basis and method of calculation.

Clarify how customers should be told about the temporary closure and subsequent reopening. Notices on the door, outlet listings and the brand’s shared communication channels should be consistent. Any continuing obligations to customers must be dealt with separately: a pause in your relationship with the franchisor does not automatically cancel them.

Practical takeaway: before buying, agree a schedule covering temporary closure: grounds, notices, payments and the resumption of trading. Then check whether you can afford both the downtime and the return to sales without relying on verbal promises of concessions.