Operation of the franchise agreement

Verified 20 July 2023 - Legal and Administrative Information Directorate (Prime Minister)

The franchise agreement seals agreement between franchisee and franchisor which grants it the right to use its brand and know-how for the purpose of marketing the products and/or services of the franchise network. The contract goes ahead multi-stage.

Please note

As part of a franchise agreement, the franchisee and the franchisor must comply with specific obligations.

The franchise agreement is almost always drafted at the initiative of the franchisor. It has a model that it applies uniformly to its entire network.

Most often, there is no negotiation and the contract deserves the qualification of contract of accession, i.e. a contract containing clauses non-negotiable and predetermined by one of the parties.

In a membership contract, a clause is not valid when it creates a significant imbalance between the rights and obligations of the parties, that is, where it imposes unjustified and non-reciprocal obligations on a party, for example:

  • Payment by the franchisee of a periodic fee without sufficient consideration from the franchisor (no assistance, no communication plan, etc.)
  • Prohibition for franchisee to terminate franchise agreement
  • Non-compete obligation post-contractual without geographical limit.

Please note

At least 20 days before on signature of the franchise agreement, the franchisor must submit a pre-contractual information document (PID) to the potential franchisee to make an informed decision.

The franchise agreement defines the contractual relationship between the franchisor and the franchisee.

The contract must contain following mentions :

  • Identity of franchisor and franchisee : name, address of registered office, legal form, registered capital, Siren number (unique company identification number) and registration number at SCR: titleContent
  • Detailed description of the franchise concept : nature of the activity, description of the know-how, characteristics of the products or services offered, characteristics of the market, target clientele, etc.
  • Obligations of the franchisor : transmission of know-how, initial and continuing training, operational support and marketing, etc.
  • Obligations of the franchisee : adherence to franchise standards and procedures, payment of admission and fees, participation in training, etc.
  • Periodic Fees : the manner in which royalties are paid by the franchisee, including amounts, maturities and calculation methods.
  • Exploitation of distinctive signs : sign, brand, logo...
  • Support and Support : The level of support and assistance the franchisor will provide to the franchisee, including initial training, continuing education, marketing support, access to approved suppliers, etc.
  • Duration of contract — Typically between 5 and 10 years, depending on the financial investment of the franchisee to achieve a return on investment.
  • Termination Terms : terms and conditions for early termination of the contract by either party, as well as the possible financial consequences of termination (criminal clause).
  • Conditions for renewal : the contract may be renewed by tacit renewal, by extension (signature of an amendment) or by the conclusion of a new contract allowing the negotiation of the various terms.
  • Conditions of assignment : in the event of a sale by the franchisee, the franchisor has a right of control over the choice of the new candidate (approval clause, preference pact...)
  • Territorial exclusivity clause : territorial restrictions, exclusive zones, priority rights
  • Confidentiality clause : prohibition of the franchisee from disclosing the know-how of the brand
  • Non-compete clause : the franchisee is prohibited from engaging in a competing activity for the duration of the contract and/or a defined additional period
  • Supply clause : exclusive, quasi-exclusive supply, control...
  • Dispute resolution : Amicable dispute resolution procedure (mediation, arbitration) and competent tribunal

Please note

It is recommended to consult with a lawyer specialized in franchise law to draft or review a franchise agreement.

The end of the franchise agreement shall beexpiration of its initial duration or as a result of early termination.

Early termination occurs when either party commits serious or repeated deficiencies its contractual obligations. This is the case, for example, if the franchisee does not comply with an exclusive sourcing clause, does not comply with network standards or does not pay its royalties. On the franchisor's side, he commits a serious breach if he does not respect the exclusive zone granted to his franchisee.

In this case, the person liable may be required to compensate the loss suffered by paying damages to the other party. The parties may have previously fixed the amount of the compensation and/or penalties via a penalty clause.

Please note

A party that terminates the contract early without justification may be ordered to continue performance of the contract.

The renewal of the contract shall not be automatic pitch, it must be laid down in the franchise agreement. On the other hand, in the event of breach of contract, the franchisee must benefit from a reasonable notice (indexed to relationship duration).

Please note

In the event of failure to comply with sufficient notice, the franchisee may be entitled to damages to the extent that he would have been entitled to during the period of notice which he was deprived of.

Whatever its cause, the termination of the franchise agreement implies the termination of obligations weighing on each of the parties. As such, the franchisee must immediately cease all use of know-how and distinctive signs, otherwise he will be guilty of unfair competition or even counterfeiting.

On the other hand, certain obligations are intended to to survive after the expiry of the contract (confidentiality clauses, post-contractual non-competition clauses, jurisdiction clauses, etc.).

Example :

The franchisor, even if it has wrongfully terminated the franchise agreement, may apply the penalty clause (providing for a penalty) against the franchisee if the franchisee has continued to use the trademark and the distinctive signs of the franchise after termination.

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