What are the franchisor's obligations under a franchise agreement?

The franchise agreement has established itself as one of the most dynamic development models in France, whether in the restaurant, retail, personal services or digital pure-player sectors. For the franchisor, this model makes it possible to replicate a proven concept without bearing alone the investment required for each outlet. For the franchisee, it offers the security of a well-known brand and transmitted know-how.

But this particular contractual relationship rests on a fragile balance. The franchisor assumes statutory, contractual and case-law obligations, the breach of which may result in the nullity of the agreement, the payment of damages, or even the reclassification of the network. Mastering these obligations is therefore essential for any executive who wishes to structure a franchise network or commit as a franchisee.

This article reviews all of the franchisor's obligations, in light of the French Commercial Code, the Civil Code, French case law and European competition law.

Why does the franchise agreement impose specific obligations on the franchisor?

What is a franchise agreement under French law?

The franchise agreement is not defined by any specific provision of the Civil Code or the Commercial Code. It is a sui generis contract, that is to say an innominate contract developed through commercial practice and case law. It is characterised by the combination of three cumulative elements: the provision of distinctive signs (brand, trade name, logo), the transmission of secret, substantial and identified know-how, and the provision of ongoing assistance to the franchisee throughout the term of the agreement.

These criteria have been enshrined by French case law and reflect the principles laid down at European level, in particular in the Pronuptia judgment of the Court of Justice of the European Communities of 28 January 1986. Any contractual relationship that does not combine these three pillars cannot legally be classified as a franchise, even if the parties have so named it. A mere trademark licence, an exclusive concession or a commercial affiliation do not fall under the same regime.

What is the legal framework applicable to the franchisor?

The franchisor must navigate several overlapping bodies of rules. At the national level, Article L330-3 of the Commercial Code and its implementing decree R330-1 govern the pre-contractual information obligation. Article 1112-1 of the Civil Code, introduced by the 2016 reform of contract law, enshrines a general duty to inform during the pre-contractual phase. Article 1104 of the Civil Code requires good faith at every stage of the relationship. Article L442-1 of the Commercial Code regulates restrictive competition practices and the abrupt termination of established commercial relationships.

At European level, Regulation (EU) 2022/720 of 10 May 2022 on vertical agreements sets out the rules applicable to competition restrictions in distribution agreements, including franchising. The franchisor must also comply with the rules relating to trademark law (Intellectual Property Code), with consumer law where the network deals with individuals, and with the GDPR where it centralises customer data.

What is the franchisor's pre-contractual information obligation (DIP)?

What must the pre-contractual disclosure document contain?

Article L330-3 of the Commercial Code requires the franchisor, in its capacity as a person making available a brand or trade name in return for an exclusivity or quasi-exclusivity undertaking, to provide the prospective franchisee with a pre-contractual disclosure document (DIP). This document must be provided at least twenty days before signing the agreement or before any payment of money, in particular in respect of the reservation of a territory.

The content of the DIP is specified by Article R330-1 of the Commercial Code. It is an exhaustive list of information intended to enable the prospective franchisee to commit on a fully informed basis. The DIP is not a mere administrative formality: it is a genuine transparency tool regarding the network, its history, its performance and its constraints.

Pre-contractual disclosure document

The 9 mandatory categories of the DIP

What penalties does the franchisor face for an incomplete or misleading DIP?

Breach of the pre-contractual information obligation does not, in itself, constitute an automatic ground for nullity of the agreement. The case law of the Cour de cassation holds that nullity may be declared only if the absence or inadequacy of the DIP vitiated the consent of the franchisee, for example by preventing them from assessing the actual viability of the project or the health of the network.

This distinction is essential. A DIP that is incomplete on a minor point will not be sufficient to obtain annulment. Conversely, a DIP that conceals mass closures of franchisees, loss-making annual financial statements or a history of litigation may justify annulment for fraudulent misrepresentation or mistake. In that case, the franchisor may be ordered to refund the entry fee and the royalties and to compensate the franchisee for the losses incurred.

Beyond nullity, the provision of truthful information accompanied by unrealistic turnover forecasts engages the franchisor's contractual liability. Case law holds that the franchisor, in its capacity as an experienced professional, must provide projections based on objective factors. A manifestly overstated forecast study constitutes a fault for which the franchisee may claim compensation.

What obligations does the franchisor have during the performance of the agreement?

How must the franchisor transmit its know-how?

The transmission of know-how constitutes the very substance of the franchise agreement. Without transmissible know-how, there is no franchise, but merely a trademark licence. The European regulation on vertical agreements defines know-how as a body of non-patented practical information, resulting from the supplier's experience and which must be secret, substantial and identified.

The secret nature means that the know-how is not generally known or easily accessible. The substantial nature implies that it provides genuine added value to the franchisee in operating its business. The identified nature requires that the know-how be described in sufficient detail, generally in an operating manual or franchisee bible, to enable verification of its effective transmission.

Case law further requires that the know-how has been tested and proven by the franchisor in at least one pilot unit. A concept that has never been tested under real conditions cannot serve as the basis for a franchise agreement. This requirement protects the franchisee against committing to a non-viable business model and constitutes a major point of vigilance during pre-contractual audits.

What technical and commercial assistance must the franchisor provide?

Ongoing assistance is the third essential component of the franchise agreement. It takes the form of initial training for the franchisee and its staff, followed by operational support throughout the agreement. This assistance may take various forms: field visits, a helpline, an intranet, marketing materials, network coordinators, continuing training programmes, and updates to the operating manual.

The agreement must precisely describe the content, the frequency and the arrangements of this assistance. Wording that is too vague would expose the franchisor to disputes over the performance of its obligation. Conversely, overly burdensome commitments risk being impossible to honour and generating litigation. The balance lies in an objective and measurable description of the services.

The absence of effective assistance constitutes a contractual breach that may justify termination on the franchisor's wrongs and the payment of damages. Several decisions of the Cour de cassation have found the franchisor liable where it merely collected royalties without providing the follow-up stipulated in the agreement. The burden of proving the assistance provided lies with the franchisor, who must retain written records of its interventions: visit reports, training materials and electronic exchanges.

What are the franchisor's obligations regarding distinctive signs (brand, trade name)?

The franchisor makes available to the franchisee its brand, trade name, logo and any other distinctive sign necessary to operate the concept. This provision generally takes the form of a licence of use inserted into the franchise agreement. The franchisor must guarantee the franchisee quiet enjoyment of these rights, in accordance with Article 1719 of the Civil Code applied by analogy to contracts relating to an intangible asset.

This guarantee requires, first, that the trademark be validly registered with the INPI or the EUIPO for the products and services concerned, and that renewals be carried out in good time. A lapsed or cancelled trademark deprives the agreement of its substance and engages the franchisor's liability. The agreement must also specify the geographic and functional scope of the authorisation to use: use on the storefront, on communication materials, on websites and on packaging.

The franchisor also has an obligation to defend the trademark against infringements by third parties, in particular through infringement or unfair competition actions. This obligation is essential to preserve the value of the network. A franchisor that remains passive in the face of obvious usurpations may be held liable by franchisees who observe a commercial deterioration linked to the proliferation of copies.

What are the franchisor's economic and territorial obligations?

How to manage territorial exclusivity and intra-network competition?

Where the agreement provides for territorial exclusivity, the franchisor undertakes not to establish a competing outlet in the defined territory, whether a company-owned unit, another franchisee or an affiliated partner. This exclusivity must be drafted precisely: geographic scope, types of channels concerned (physical store, e-commerce, marketplaces), and products or services covered.

The issue of the digital channel has become central. A franchisor that opens a national online sales site delivering directly to customers located within a franchisee's exclusive territory risks infringing that exclusivity. The agreement must therefore anticipate this interplay between in-store sales and online sales, by clearly allocating the flows or by providing for turnover rebate mechanisms.

European Regulation 2022/720 permits certain territorial restrictions in franchising, provided they do not amount to an artificial partitioning of the internal market. Passive sales (responding to an unsolicited order from a customer located outside the territory) cannot, in principle, be prohibited to the franchisee. Conversely, the franchisor may restrict active sales (canvassing outside the granted territory) under certain conditions.

Can the franchisor impose prices or unfair conditions?

The franchisor cannot impose a fixed or minimum resale price on the franchisee. This practice constitutes a hardcore competition restriction within the meaning of European law and exposes the parties to penalties imposed by the Competition Authority or the European Commission. The franchisor may, however, recommend a price or impose a maximum price, provided that these arrangements do not have the practical effect of aligning prices across the entire network.

Article L442-1 of the Commercial Code also penalises practices consisting in subjecting the other party to obligations that create a significant imbalance in the contractual rights and obligations. This provision, frequently invoked in distribution litigation, may lead to the annulment of clauses deemed excessive: disproportionate post-contractual non-compete clauses, penalties without consideration, and exclusive purchase obligations without objective justification.

The franchisor must therefore ensure the proportionality of the obligations imposed on the franchisee. The presence of effective consideration for each commitment, the moderation of penalties and the clarity of the drafting of the clauses constitute the best safeguards against subsequent reclassification.

Franchisor's obligations

Breaches and potential penalties

What are the franchisor's liabilities in the event of a dispute?

What happens in the event of abrupt termination of the franchise agreement?

Article L442-1, II of the Commercial Code penalises the act of abruptly terminating, even partially, an established commercial relationship without written notice taking into account, in particular, the duration of the relationship. This provision applies fully to franchise relationships, including where the agreement has reached its normal term but the parties had maintained an ongoing relationship for several years.

The length of the notice period must be assessed in light of the duration of the relationship, the franchisee's economic dependence, the specific investments they have made and commercial usage. The courts generally accept a notice period of several months, sometimes several years for very long-standing relationships. The text nevertheless provides that a notice period of eighteen months shields the franchisor from any challenge as to its length.

Failure to comply with this obligation exposes the franchisor to the payment of damages corresponding to the gross margin lost during the notice period that should have been observed. These sums can be considerable and often represent the main issue in post-contractual litigation. The franchisor nevertheless retains the right to terminate without notice in the event of serious misconduct by the franchisee or force majeure.

How to prevent disputes within a franchise network?

The prevention of disputes starts with rigorous contractual drafting. A franchise agreement that is precise about each party's rights and obligations, about the control arrangements, about the performance indicators and about the amicable resolution mechanisms considerably reduces the risk of litigation. Prior mediation or conciliation clauses should be systematically considered.

Documentary traceability is the second pillar of prevention. The franchisor must retain evidence of the provision of the DIP, the training delivered, the follow-up visits, the technical exchanges and any warning sent to the franchisee in the event of a breach. In the event of litigation, this documentation will weigh decisively before the court.

Finally, the franchisor must organise a structured network life: franchisee committees, periodic meetings, satisfaction surveys and listening mechanisms. A network in which difficulties are identified and addressed upstream generates significantly less litigation than a network whose franchisees have no channel of expression.

Practical example. A franchisor in the fast-food sector opens a national online ordering site that delivers directly to customers within the catchment areas of its franchisees. Without a clause allocating orders, the latter observe a decline in footfall. Several of them sue the franchisor for infringement of territorial exclusivity and obtain compensation, the court finding a significant imbalance within the meaning of Article L442-1 of the Commercial Code.

How does the Mirabile Avocat firm support franchisors and franchisees?

The Mirabile Avocat firm, specialising in distribution law, commercial law and digital law, supports executives at every stage of the franchise project. For network heads, the firm acts on the legal structuring of the model, from defining the concept and formalising the know-how in an operating manual, through to drafting the franchise agreement and the pre-contractual disclosure document compliant with Article L330-3 of the Commercial Code.

For prospective franchisees, the firm carries out DIP audits, verifies the soundness of the network, analyses the financial forecasts and identifies the sensitive clauses of the agreement before signing. This pre-contractual intervention makes it possible to rule out risky commitments and to negotiate the necessary adjustments.

During performance, the firm advises on issues of regulatory compliance, in particular regarding the GDPR where the network centralises customer data, competition law where questions of imposed prices or exclusivity arise, and intellectual property for the protection of trademarks and distinctive signs. The firm also supports franchisors in the digitalisation of their network, whether online ordering platforms, paperless loyalty programmes or omnichannel strategies.

Finally, in the event of litigation, the Mirabile Avocat firm implements a tailored litigation strategy: amicable resolution where the parties wish to preserve the relationship, mediation or arbitration where the agreement so provides, and court action before the commercial court or the court specialising in restrictive practices. The objective is always to secure the client's economic interests while limiting the reputational risks associated with the media coverage of a network dispute.

Conclusion

The franchise agreement rests on a body of statutory, contractual and case-law obligations from which the franchisor cannot escape. Pre-contractual information, transmission of know-how, ongoing assistance, guarantee of the distinctive signs, compliance with the territory and competition rules, regulation of termination: each dimension requires particular vigilance and appropriate contractual formalisation.

For the executive who wishes to develop a franchise network or join an existing network, the support of a lawyer specialising in distribution law constitutes an indispensable investment. It makes it possible not only to prevent disputes, but also to optimise the economic value of the network by securing every link in the contractual relationship.

Legal disclaimer. This article is intended for informational and educational purposes. It cannot replace personalised legal advice. As each situation calls for a specific analysis, it is recommended to consult a lawyer before making any contractual decision.