Franchise penalties in Belarus: what to check before buying

Penalties can turn an affordable franchise into an expensive commitment, even if the initial franchise fee and royalties seem reasonable. Before buying, check not only the size of the penalties but also what triggers them, how a breach must be proved and whether you have an opportunity to put things right. In the Belarusian franchise sector, transparent liability arrangements help protect the brand without turning every minor operational error by a franchisee into a source of extra payments.

1. Find all the liability provisions

Franchising in Belarus is specifically regulated by the Civil Code: Article 910 describes the comprehensive business licence agreement, while Article 910-1 sets out requirements for a written agreement and registration with the patent authority. Registration is handled by the National Centre of Intellectual Property (NCIP). Without registration, the agreement is invalid. There is no separate franchising act, but that does not mean there are no specific rules.

The Civil Code’s general provisions on obligations, contractual penalties and damages also apply to contractual liability. You therefore need to read the ‘Liability of the parties’ section alongside the rest of the agreement, rather than as a standalone document. Registration does not remove the need to assess whether the terms are acceptable to the buyer.

Before signing, request the full set of documents referred to in the draft:

• schedules listing breaches and penalties;
• current standards and instructions whose breach gives rise to liability;
• procedures for inspections and recording issues;
• rules for serving notices;
• terms governing deductions from any security deposit.

Ask the seller to show you exactly where each financial penalty is set out. If the amount appears in a separate ‘network tariff’, establish which version applies and whether the franchisor can change it unilaterally. Wording such as ‘under the current rules’, without access to those rules, makes it impossible to assess your obligations.

Pay particular attention to phrases such as ‘per occurrence’, ‘per day’ and ‘per outlet’. The same amount can create a very different financial burden depending on how it is applied.

2. Work through realistic penalty scenarios

Create a table covering the breach, the amount payable, when charges start and stop accruing, the evidence required and any additional consequences. This is a practical negotiating tool, not merely an appendix to a legal opinion.

Work through several situations that could arise in your particular business format. For example, an employee submits a report late, outdated promotional material is found at an outlet, or a payment arrives after its due date. For each case, establish what counts as a single breach and which amounts could be claimed simultaneously.

The key question is whether the consequences are cumulative. For a single incident, the agreement may provide for a fixed penalty, a daily penalty, damages and a right to terminate the relationship. Do not assume that paying a penalty settles all other claims: the relationship between contractual penalties and damages needs to be checked against the agreement and the applicable Civil Code provisions.

Also clarify:

• whether a late-payment penalty is calculated on the overdue payment or a larger amount;
• whether there is a cap on charges for a single breach;
• whether a further notice of the same issue can count as a new breach before the deadline for remedying it has expired;
• whether a penalty applies to all outlets when the problem arose at only one;
• who pays for a follow-up inspection, and on what basis.

Use your own figures to calculate the total penalties over a chosen period, plus the cost of putting things right. Compare the result with the outlet’s operating profit, not just its revenue. This test shows how damaging even a short-lived mistake could be.

3. Agree on notice and an opportunity to remedy breaches

Clear liability starts with a clear procedure. Propose a requirement that any breach notice identify the specific clause of the agreement or standard involved, describe the facts, provide supporting evidence and specify the action required. A message saying only that ‘the outlet does not meet network requirements’ is not enough to address the issue properly.

For breaches that can be remedied, negotiate a period to put things right before a penalty is imposed. This is a negotiated contractual term, not a universal statutory entitlement for franchisees. It should be expressly included in the agreement, with a clear definition of the cases it covers.

Distinguish between breaches according to their consequences. A late internal report and a situation that threatens customer safety require different responses. Serious cases may require immediate action; for an administrative error, notice and an opportunity to correct it are reasonable.

Also set out a procedure for objections. Who reviews the franchisee’s explanation? How is it confirmed that an issue has been resolved? Do daily charges stop when evidence is submitted, or only after a network representative makes a follow-up visit? The latter is particularly risky if there is no deadline for that visit.

If the agreement allows disputed amounts to be deducted from a security deposit, negotiate advance notice, an itemised calculation and a procedure for returning sums deducted without justification. Otherwise, a disagreement immediately becomes a working capital shortfall.

4. Check liability limits and obligations on both sides

Do not simply ask for an individual penalty to be reduced. Discuss an overall cap on contractual penalties over a specified period, a ban on imposing a fresh penalty for the same unresolved incident, and objective criteria for what counts as a repeat breach. A lawyer should check whether these terms are permissible and sufficiently precise, taking account of the obligations involved.

Look at the franchisor’s liability too. If the franchisee is liable for every day of delay, but the agreement says nothing about the consequences of the other party failing to meet its corresponding obligations, that is a reason to return to negotiations. Reciprocity does not require identical amounts: what matters more is defining the consequences when either party fails to fulfil specific obligations.

Do not count on a court reducing a clearly excessive penalty. The Civil Code allows a contractual penalty to be reduced if it is manifestly disproportionate to the consequences of the breach, but this is neither an automatic write-off nor a substitute for negotiating the agreement.

Practical takeaway: before buying, map out the penalties and test them against several everyday operational mistakes. Sign only when you understand what triggers each charge, its limit, how to challenge it and when liability ends.