Exploring the basics of turnkey construction in the restaurant business?

People choose to become franchisees for any number of reasons, but top among those lists is the support which a franchisor can provide. Support comes in many forms, be it in lease negotiations, marketing or buying power with respect to certain products and supplies, among others. But one key area where the franchisor’s support is vital (and sometimes controversial) to a franchisee is construction.

A standard franchise agreement for a restaurant business will provide that the franchisor will construct the store on the franchisee’s behalf, the franchisee will construct the store itself or, typically, that the franchisor has the right to choose which of those two options will apply to the franchisee.

When a franchisor builds the franchised business (referred to as “turnkey” construction), it does so with a team of contractors of its choosing, at preferred rates and oftentimes at a greater speed than a franchisee may be able to coordinate. Franchisees may be relieved to not have to worry about construction among all of the other stresses of starting a business, but this service is rarely, if ever, free. Most franchisors will charge some form of administrative or development fee, to reimburse them for their administrative costs in overseeing and facilitating construction on the project.

Franchisees may save themselves fees of this nature if they are permitted to do the build-out themselves, but may find that they are constrained in terms of which contractors they can use. The franchisor may have a designated construction firm available to work with the franchisee, the franchisee may be permitted to choose from a list of approved contractors or the franchisee may even be able to present the franchisor with its own list of contractors, who will have to be approved by the franchisor prior to construction commencing. 

In those cases, the franchisee’s chosen contractors will usually work with the franchisor’s architect and/or design team, utilizing the franchisor’s plans and blueprints, and those contractors may have to sign a non-disclosure agreement in advance.