Buying a franchise: check the opening deadline before signing

A planned opening date can become a costly contractual obligation. If the premises are not ready, equipment is delayed or a required permit is missing, costs may start mounting before you have any customers. Franchising brings together independent business owners, but that does not mean the risk of a delayed launch is automatically shared. Before buying a franchise, you need to understand what the opening deadline means and what happens if you cannot meet it.

1. Distinguish a target date from a binding opening deadline

Start by finding every reference to timing in the agreement and its schedules. A date in the launch plan may be a provisional target, while another clause may require the business to be fully operational within a specified period after signing.

Ask the franchisor to explain which dates are binding and what counts as opening. Is it the first day of trading, an approved trial run or a launch event held according to the network’s instructions? If the franchisor must approve the business before it opens, that process also needs to be clear.

In particular, check:

• When does the deadline start running: on signing, when you take possession of the premises or following some other event?
• Are there interim milestones that are also contractual obligations?
• Who decides whether the business is ready to open?
• How quickly must the franchisor carry out a final inspection?
• What consequences does the agreement provide for if a deadline is missed?

Do not accept a binding deadline without understanding the assumptions behind it. An established concept does not make every new opening predictable.

2. Map out what must be ready before opening

Draw up a simple timetable that assigns each critical task a responsible party, an estimated completion date and evidence confirming that it is complete. Include matters such as fitting out the premises, equipment deliveries and the franchisor’s approval to open, where relevant to the business.

Also find out which official decisions, registrations or permits your particular business requires. The requirements depend on what you plan to do and how the business will operate. Check them with the relevant authority rather than assuming that the network’s openings elsewhere provide all the answers.

Ask who will apply, who will pay and what support the franchisor actually undertakes to provide. A promise to ‘help with permits’ is not the same as a commitment to prepare a specific document by a set date. Nor can the franchisor guarantee a decision by a public authority.

Then examine the dependencies: can the equipment only be installed once building work is complete? Can the final inspection only be booked after installation? The timetable should show that sequence, not just a list of desired completion dates.

3. Negotiate how delays will be handled before they happen

Ask for clear contractual provisions on how a delayed opening will be handled. Distinguish between delays you cause, those attributable to the franchisor and those involving an external supplier or public authority. The same consequences will not necessarily be reasonable in all three cases.

Well-drafted provisions should answer four questions:

• Notification: How and when must a risk of delay be reported?
• Extension of time: What circumstances entitle you to more time, and how is the new deadline set?
• Payment: Which fees start accruing even if the business has not opened?
• End point: What happens if opening is still not possible after a prolonged delay?

Also check whether the agreement’s term starts running as soon as you sign. If so, a delayed opening may use up some of the time in which you could otherwise have operated under the concept and generated revenue.

Model a separate delay scenario in your financial projections. Push back sales, but retain the expenses that remain payable under each agreement. The aim is to identify which opening-related terms need negotiating, not to assume that fees will automatically be suspended.

Remember that an arrangement with the franchisor does not change your obligations to an equipment supplier, for example. Separate agreements must be dealt with individually.

4. Use the disclosure requirement to obtain clear answers

Sweden has an Act on Franchisors’ Duty to Disclose Information (2006:484). Well before an agreement is entered into, the franchisor must provide clear, comprehensible written information about what the agreement entails and any other matters necessary in the circumstances. This information must cover, among other things, fees and other financial terms, the duration of the agreement and the conditions governing its termination.

You should therefore request a consolidated written explanation of the opening deadline and its financial consequences. If missing the opening deadline could lead to termination of the agreement or particularly onerous payment obligations, you need to understand this before signing.

However, the Act does not give you an automatic right to postpone opening or avoid payment if there is a delay. The binding effect and interpretation of the agreement are also assessed under general contract law principles, with the Swedish Contracts Act playing a central role. Have an independent lawyer review how the opening requirement interacts with payment terms and provisions on breach of contract.

Practical conclusion: Do not sign until the opening deadline is realistic, responsibility for each launch task is clear and the agreement sets out what a delay means for both timing and costs.