Delayed franchise opening: allocating costs and responsibilities

When turning your existing business into a franchise network, you also need to plan for a delayed opening. A missed delivery, unfinished premises or a system that does not work can push back the opening while costs continue to mount. Before signing the agreement, establish who must act, which payments are affected and when the parties must reassess the situation.

Distinguish between a planned opening and binding commitments

A date in a launch plan is not necessarily the same as a contractual obligation to open. If the distinction is unclear, the franchisor may be counting on income while the franchisee believes the timetable is still provisional.

Divide the launch into clear milestones:

• Planned opening: the date both parties are working towards.
• Conditions for opening: what must be in place before the business can welcome customers.
• Decision to postpone opening: who makes the decision and how it is documented.
• Final review deadline: when the parties must assess whether the launch is still viable.

Start with how your existing business actually operates. Which deliveries are essential before you can make sales? Which tasks must happen in a particular order? Training on the till system, for example, may lose its value if that system is then replaced before opening.

Create a simple launch checklist showing each activity, the responsible party, the deadline and the evidence needed to confirm completion. It should highlight dependencies, not simply list target completion dates.

Allocate responsibility according to what each party can control

Avoid a blanket clause making the franchisee responsible for all delays. It will be difficult to apply if, in practice, the opening depends on deliveries or approvals from the franchisor.

Instead, distinguish between three situations: a delay attributable to the franchisor, the franchisee or a third party. Also explain how you will handle multiple causes occurring at the same time. The fact that a supplier is designated by the franchisor does not, on its own, determine who is legally responsible for delivery; the order and the supplier agreement also need to be examined.

For each critical task, specify:

• who commissions and monitors the work,
• who must be notified if there is a risk of delay,
• what steps each party should try to take,
• who can approve an alternative solution.

Establish a written early-warning procedure. The notice should describe the obstacle, its likely impact and the proposed action. Do not wait until the opening date has already passed.

If the franchisor must approve something before opening, the review process should also be clear. Specify what supporting material is required and how feedback will be provided. The franchisee should not have to guess why a response is taking so long.

Establish the financial consequences of a delay

A postponed opening can generate expenses without corresponding sales. It is therefore not enough for the agreement to state the amounts payable. It must also make clear what triggers each payment.

Review the initial franchise fee, ongoing franchise fees, any minimum fees and payments for systems or other services. Should payment begin when the agreement is signed, when the service becomes available or when the outlet opens? Different charges may need different arrangements.

Distinguish between payment for work already completed and payment for future obligations. Training that has already taken place is not the same as planned opening support that has yet to be delivered. State explicitly whether deferral, credit or repayment may be available, and on what conditions.

Address additional costs too. Rescheduled training, an extra journey or extended storage of equipment could otherwise become an unexpected source of conflict. Agree how such costs must be approved and documented, without suggesting that every delay automatically creates an entitlement to compensation.

Then test the terms against a specific scenario: the opening is postponed, staff have been hired and systems are already being billed. Can both parties understand what they must pay and do simply by reading the terms?

Provide pre-contract information and establish a way forward

Sweden has a specific Act (2006:484) on Franchisors’ Duty to Provide Information, but no comprehensive statute governing the entire franchise relationship. Other legislation, including the Swedish Contracts Act, is also relevant to the parties’ terms.

The disclosure legislation requires the franchisor to provide clear, understandable written information in good time before the franchise agreement is entered into. This must cover, among other things, fees and other financial terms, as well as the agreement’s duration, termination conditions and the financial consequences of termination. Terms that become relevant when an opening is delayed must therefore be clearly disclosed where they affect these matters. The legislation does not, however, prescribe a general allocation of costs arising from delays.

Have a lawyer review how the delay provisions work alongside the rest of the agreement. Distinguish between moving the opening date, suspending certain obligations and ending the relationship. Also specify whether a later opening affects the agreement’s expiry date; do not assume that the contract term is automatically extended.

Practical takeaway: Draw up a launch plan with clearly allocated responsibilities and calculate the financial impact of a delayed opening before signing the first agreement. A resilient franchise network needs shared ground rules even when the opening does not go to plan.