Buying a franchise: what to request before paying a reservation deposit

Joining a franchise network sometimes starts with a request for a reservation payment before the final agreement is provided. Such a payment is not necessarily a problem, but it must not replace the opportunity to assess the offer properly. Before transferring money or signing a preliminary document, you need to know what you will receive, what you are committing to and under what circumstances you can get your money back.

1. Establish what you are signing and paying for

A document labelled a ‘reservation’, ‘expression of interest’ or ‘memorandum’ may contain binding obligations. What matters is its content, not its title. Alongside confidentiality provisions, it might include an obligation to enter into a future agreement, a ban on negotiating with other brands or a requirement to pay a contractual penalty.

Be equally careful about the purpose of the payment. Is it an advance payment to be credited towards the initial franchise fee, a fee for specific preparatory work, or payment for a time-limited reservation? Each option has different implications. Simply calling it a ‘deposit’ does not settle all the conditions for a refund; an arrangement involving earnest money, known in Czech law as závdavek, may also have a specific legal significance.

Before paying, obtain written confirmation of:

• who is receiving the money and under which agreement;
• exactly what is being reserved and for how long;
• what you will actually receive in return for the payment;
• whether the amount will later be credited towards another payment, and which one;
• when it is refundable and what deductions, if any, are permitted.

A sales representative’s verbal promise is not enough if the document you sign says something different.

2. Make use of Czech rules on pre-contractual negotiations

The Czech Republic has no dedicated franchise legislation, mandatory standard disclosure document or statutory registration procedure specifically for franchises. Nor is there a specific statutory period during which a prospective franchisee must review the offer before signing a franchise agreement. Ordinary business licensing requirements are, of course, unaffected.

The legal foundation is the Civil Code, Act No. 89/2012 Coll. A franchise agreement is usually an agreement not specifically defined by the Code, concluded under Section 1746(2); depending on its content, rules on licensing and other obligations also apply. The duty to act in good faith applies even before signing. Under Section 1728, the parties must disclose factual and legal circumstances relevant to assessing whether a valid agreement can be concluded and to the other party’s evident interest in entering into it.

This does not, however, create an automatic entitlement to all the franchisor’s internal documents. The scope of the information required depends on the circumstances and purpose of the negotiations. When handling confidential information, remember your duty to protect it against misuse or unauthorised disclosure.

The European Code of Ethics for Franchising is a self-regulatory standard for the franchise community, not Czech law. Check whether the brand has committed to it and how that commitment is reflected in its recruitment of franchisees. When entering into an agreement as a business, do not rely on the consumer right to withdraw within fourteen days.

3. Draw up a checklist of documents for your decision

Before making a reservation payment, request at least a draft franchise agreement, including any schedules or appendices it refers to, a draft reservation agreement and a list of any other documents you will have to sign. If an appendix is not yet available, ask when it will be supplied and what it will cover.

It is reasonable to respect the protection of know-how in the operations manual. A confidentiality agreement and supervised access, rather than a copy to keep, may offer a solution. However, you need to understand any obligations that will materially affect your decision before making an irreversible commitment. An assurance that you will receive the details after paying is not enough.

A simple checklist with four columns can help: document requested, person responsible, delivery date and outstanding questions. Record the version of each draft too. Before signing, you will then be able to identify whether the terms have changed from those on which you based your reservation payment.

Ask for a reasonable amount of time for a lawyer to review the documents. Agree this period expressly; do not assume that a statutory cooling-off period exists.

4. Make payment conditional on verifiable steps

The reservation agreement should set out not only your obligations but also specific steps the franchisor must take. These might include supplying the full set of contractual documents by an agreed date and allowing you to comment on the wording afterwards. Avoid clauses under which the payment is forfeited whenever the franchise agreement is not concluded, regardless of the reason.

In particular, negotiate what happens if the franchisor fails to provide the documents, offers substantially different terms or decides not to proceed. If the purchase depends on a loan, you can also agree a condition making it subject to loan approval. Specify how you will demonstrate that a proper application was made and rejected, so that the outcome does not depend solely on one party’s assertion.

For refunds, set a deadline, specify how notice must be given and precisely define any costs that may be deducted. A general reference to ‘administrative costs’, without a calculation method or cap, leaves room for disputes. Have any template agreement adapted to the particular transaction.

5. Keep evidence and set a decision point

Request important answers by email and confirm the conclusions of meetings in writing. Keep the offer presentation, draft agreements and payment confirmation. Include key promises directly in the agreement; do not rely solely on being able to prove later what was said during negotiations.

If essential documents are missing, propose postponing the reservation or making a refundable payment on clear terms. Pressure to pay immediately is no reason to skip the checks.

Practical takeaway: Before sending money, you must be able to explain what you are buying, what further information you will receive and when you are entitled to a refund. If any answer is missing, clarify it in the agreement first.