Obligations to refurbish your franchise.

If can be as a nasty surprise for a franchise owner to discover they have to pay for the refurbishment of their business premises.

Sometimes this is a requirement from the franchisor, other times it can be a requirement from the landlord.

Their objective is to keep their businesses looking fresh and modern.

It is typically a cost the franchisee has to bear.

We have recently been working with a new franchisee who was purchasing an existing business, that was just about due for their refurbishment.

The client said, “I want to buy this franchise, but I don’t want to pay for their refurb!”

Depending on the franchise, there may be a requirement to undertake a refurbishment within a prescribed timeframe. This requirement does not disappear if the franchise is sold.

So, yes, the purchaser is typically under the obligation to do the refurb.

But how should this be reflected in the purchase price?

Straight off the top.

In our view, if the hard cost of the refurb is known, or can be accurately estimated, this cost comes off the purchase price.

A more difficult question relates to the timeframe involved.

If the sale / purchase is to occur within 12 months of the date of the refurb, then 100% of the cost comes off the price.

But what if it’s greater than 12 months, say between 12 – 24 months?

Yes, it would be appropriate that some reduction is allowed for.

But exactly how much of a reduction is typically a matter for negotiation.

Each situation is different, so be sure to get advice before you dive in.

Let me know if you need a hand.

Peter