Your first franchise location: checking premises before signing a lease

When expanding an existing business into a franchise network, a good address does not necessarily mean a suitable location. The premises must support your concept, allow the business to operate lawfully and enable an independent franchisee to trade sustainably. Before your first expansion, establish a site approval process that separates commercial appeal from legal and technical feasibility. The most expensive mistakes often arise when the lease has already been signed but key questions remain unresolved.

1. Define your premises requirements, not just your preferred address

Start with the requirements of your existing business. Which features are essential for delivering your service or selling your products, and which are simply an advantage? A successful company-owned outlet cannot simply be replicated at every address: a different layout may increase staffing needs, limit storage or slow down service.

Prepare a short checklist of requirements, which might include:

• usable floor area and the balance between sales, working and storage space;
• electrical capacity, ventilation, water supply and drainage;
• access for customers, staff, deliveries and waste collection;
• scope for installing equipment, signage and external plant units;
• restrictions on noise, opening hours or alterations to the building.

Classify each criterion as essential, flexible or desirable. Do not let an overall score override essential requirements: excellent footfall cannot compensate for inadequate ventilation options. This allows the franchisee to rule out unsuitable premises before paying for plans or a reservation fee.

Assess commercial appeal separately. Observing footfall at different times, checking accessibility and considering proximity to target customers are more useful than a general claim that a location is ‘very busy’.

2. Check legal and technical feasibility

In Slovenia, franchising as a business arrangement is not governed by a dedicated law. A franchise agreement is not a specifically defined contract type under the Obligations Code (OZ), but its general rules apply. There is no dedicated compulsory franchise register or statutory franchise pre-contractual disclosure document. This does not remove the general duty to act fairly and in good faith during negotiations.

The premises are subject to rules relating to the building and the activity actually carried out there. Under the Building Act (GZ-1), you must check that the relevant permits are in order and that the proposed use or change of use is permissible. Retail businesses must comply with the Trade Act (ZT-1) and its implementing regulations, including those on minimum technical requirements. Food businesses, hospitality businesses and other specifically regulated activities are also subject to sector-specific requirements. Registering a business activity does not, in itself, establish that the chosen premises are suitable.

Obtain the available permits, plans and information about previous use from the owner. Also check their authority to let the premises and whether any consents are required for alterations or signage. The statement ‘the previous tenant did something similar’ is not sufficient evidence.

Have the documents reviewed by an appropriate professional, such as a building design professional, lawyer or fire safety specialist, depending on the complexity involved. The outcome should be a list of unresolved questions, required works and permits, rather than just a verbal opinion that the premises will probably be suitable.

3. Calculate the full financial commitment before signing

Rent is only one element of the cost of a location. Your comparison should include running costs, maintenance, insurance, the deposit, design work, refurbishment, equipment and the period without revenue while the premises are being prepared. Also check the rent review mechanism and your obligations when handing back the premises.

Distinguish between investments you can take with you and those that will remain in the building. Ventilation or alterations to building services can represent substantial expenditure that cannot be recovered. Set out clearly in the contract who commissions the works, who pays for them and whether the tenant must reinstate the premises when leaving.

Prepare a base case and a downside scenario for each location. In the downside scenario, allow for slower sales growth, a delayed opening and higher fit-out costs, using assumptions based on quotations and verifiable experience. The aim is not to predict a guaranteed return, but to establish how much financial reserve the franchisee would need.

Align the lease term with the planned duration of the franchise relationship and the investment payback period. The possibility of renewal is not the same as a guaranteed renewal: the conditions, deadlines and rights of both parties matter.

4. Require written approval before making irreversible commitments

The process should specify who proposes the location, who checks the documents and who makes the final decision. At a minimum, distinguish between a preliminary commercial assessment, a technical and legal review, and final written approval. At each stage, record any missing evidence and the person responsible for obtaining it.

Define what the franchisor’s approval means in the franchise agreement. It may confirm that the premises fit the concept, but it must not be presented as a substitute for permits or a guarantee of commercial success. Allocating tasks contractually does not remove obligations imposed on either party by law.

Where checks are still ongoing, ask a lawyer to help draft a conditional commitment to lease, for example with clearly defined conditions concerning permits, consents or the feasibility of refurbishment. Specify the deadline for meeting those conditions, the consequences if they are not met and arrangements for refunding any payments made. Review the franchise and lease agreements together so that one does not require the business to open while the other does not yet allow the premises to be used.

Practical takeaway: Before signing the first lease, prepare a site criteria checklist, a list of required supporting documents and a formal approval sign-off process. Within the franchise network, the decision on premises should be documented before substantial irreversible commitments are made.