Pre-contract franchise disclosure: what to give prospective franchisees in the Czech Republic

When expanding an established business into a franchise network, sending a prospective franchisee a draft agreement is not enough. They need to understand what they are investing in, what you have already tested and what obligations they will take on. Well-prepared pre-contract information is not a sales presentation: it helps both parties make a decision based on the same facts. Before approaching your first partner, prepare a standard information pack and a process for providing it.

What Czech law requires

The Czech Republic has no specific franchise legislation, mandatory state register of franchises or legally prescribed franchise disclosure document. Nor is there a specific statutory period exclusively governing the provision of information before a franchise agreement is signed. This does not, however, mean that you can withhold material information.

The main legal framework is Act No. 89/2012 Coll., the Civil Code. A franchise agreement is generally concluded as an unnamed contract under Section 1746(2). Section 1728 is particularly important for pre-contract negotiations: the parties must disclose the factual and legal circumstances needed to assess whether a valid contract can be concluded and to establish the other party’s interest in entering into it. The principle of good faith and the rules on pre-contractual liability also apply.

Depending on the nature of the relationship, rules on licensing, leases or sales, trade mark legislation, and Czech and EU competition law may also apply. The absence of franchise-specific legislation therefore does not mean an absence of legal obligations.

The European Code of Ethics for Franchising is a set of self-regulatory rules, not Czech law. It may be binding, for example, through membership of a relevant association or a contractual commitment. Do not tell prospective franchisees that compliance with the code gives your concept state approval.

Put together a pack for an informed decision

Create a standalone document with a date and version number. It need not repeat the agreement, but it must enable prospective franchisees to understand the offer and find the details in the supporting documents. As a practical minimum, include:

• Identity of the franchisor: who will be the contracting party, who provides support and who owns the brand or is entitled to license it.
• Status of the concept: how long it has been operating, which outlets are company-owned and which are franchised, what has actually been tested and what is still planned.
• Scope of the relationship: what the franchisee receives at the outset, what ongoing support is provided and which activities they must arrange themselves.
• Financial commitments: initial and ongoing fees, mandatory purchases, contributions and other known costs, including whether the amounts include VAT.
• Key restrictions: rules on territory, suppliers, personal involvement, transferring the outlet and ending the relationship.
• Contractual documents: the draft agreement and any documents it refers to that affect the prospective franchisee’s decision.

Clearly flag any points that have not yet been agreed. If, for example, the investment depends on the particular premises, explain that dependency rather than presenting an apparently final figure. For each outstanding point, specify who will investigate it and when it should be resolved.

This is not a statutory list of required attachments. It is a working outline that you must adapt to your own concept and its actual risks.

Separate substantiated facts from assumptions

Explain the source of every financial figure. The performance of an established company-owned outlet does not automatically indicate how a future franchise will perform. Prospective franchisees must be able to tell whether they are receiving historical data, an indicative budget or a modelled scenario.

When presenting an outlet’s results, state the period covered and any important circumstances: for example, whether the founder managed it personally, whether it benefited from reduced rent or whether the costs included management remuneration. For estimates, describe the assumptions and any items excluded. Saying “results are not guaranteed” is no substitute for explaining the basis of the figures.

Apply the same discipline to non-financial claims. A planned head-office service is not existing support, and a trade mark application is not a registered trade mark. If you are still preparing your first franchised outlet, say so openly.

Sensitive information can be provided in stages, for example after a non-disclosure agreement has been signed. However, protecting know-how should not be used as a reason to withhold a material obligation until signing. Detailed recipes may remain protected; an obligation to buy expensive equipment must be made clear in good time.

Establish a process for disclosure, questions and updates

Appoint someone responsible for the content of the pack and someone responsible for providing it. In a small business, this may be the same person. What matters is that prospective franchisees do not receive one answer from a salesperson and a different answer later from management.

A practical process can have four steps:

1. Provide a dated pack and keep a record of the documents and their version numbers.
2. Allow reasonable time for review and independent legal or financial advice.
3. Record material questions and confirm the answers in writing.
4. Before signing, check for changes and, where necessary, provide updated documents with an explanation of the differences.

An acknowledgement of receipt proves that the documents were delivered, not that their contents are true or that the prospective franchisee actually understood them. Do not rely on a general statement that the partner has “received all information”. A specific list and a traceable record of communications are better. If you change key terms, give the prospective franchisee time to reassess them.

Practical takeaway: Before taking on your first franchisees, prepare a single, version-controlled information pack, check that it accurately reflects the facts and have it reviewed by a lawyer. Trust within a franchise network begins with what the parties openly share before signing.