Franchising in Denmark: Avoid Unintended Commitments Before Signing

When you develop your existing business into a franchise network, the relationship often begins long before the final agreement is signed. A prospective franchisee may want to reserve a town, explore premises or pay a deposit. At this stage, you need to distinguish clearly between preliminary discussions and binding commitments. Otherwise, disagreements may arise over what has already been promised before the franchise agreement itself is in place.

Understand when an agreement can become binding

Denmark has no specific franchise legislation. Franchise agreements are governed by the Danish Contracts Act and general principles of contract law, including freedom of contract. Depending on the relationship, other legislation may also apply, including the Danish Marketing Practices Act, Competition Act and Business Lease Act. Section 36 of the Contracts Act allows unreasonable agreements to be amended or set aside, but it is no substitute for clear terms from the outset.

As a general rule, franchise agreements are not subject to specific formal requirements. A handwritten signature is therefore not necessarily the point at which a binding commitment first arises. Depending on the circumstances, verbal agreements, emails and the parties’ conduct may affect whether an agreement has been formed and what its terms are.

There is also no specific franchise registration scheme or requirement to register a franchise agreement with a public authority. This does not affect the business’s ordinary registration obligations.

Denmark has no franchise-specific requirement to provide a prescribed disclosure package before entering into an agreement. However, general principles requiring disclosure in good faith may oblige parties to disclose material information. The absence of specific rules is therefore not permission to withhold relevant information or make misleading promises.

Break the process down into clear decisions

Establish a consistent negotiation process before inviting prospective franchisees to take part. The aim is not to make communication rigid, but to ensure both parties understand what each next step means.

A practical process can have three stages:

• Initial discussions: You explore the level of interest and whether the concept is suitable. Neither the right to operate an outlet nor any entitlement to a particular territory is granted at this stage.
• Defined assessment period: The prospective franchisee investigates matters such as funding and premises. Any reservations or other binding commitments are agreed separately.
• Final agreement: The franchise agreement is entered into with precise terms and any conditions that must be met before the business can be established.

If you want to avoid becoming bound to the franchise relationship itself during negotiations, make it clear from the outset that no such commitment will arise until the agreement is signed. Have the wording legally reviewed, and ensure that subsequent emails and actions do not create a different impression.

A letter of intent should expressly distinguish between non-binding intentions and binding provisions. Its heading alone does not determine its legal effect. For example, the parties may want confidentiality obligations and a short-term reservation to be binding while the decision to establish the franchise remains open.

Be precise about reservations and payments

A prospective franchisee may reasonably need time to work without competing approaches while the bank assesses the project. But saying ‘the town is yours’ is too vague. It explains neither how long the promise lasts nor what the franchisor may do in the meantime.

If you agree a reservation, it should specify:

• The geographical area or particular premises it covers.
• Whether the franchisor is merely agreeing to stop negotiations with others or is accepting further restrictions.
• When the reservation begins and expires.
• What steps the prospective franchisee must take during that period.
• How any extension is to be agreed and what happens when the reservation expires.

A temporary reservation should not automatically be described as the final grant of exclusive territorial rights. These are separate decisions and should remain distinct.

If you require a payment before the franchise agreement is signed, the prospective franchisee must be able to see what it covers. Is it payment for a specific service, a deposit or an advance payment to be credited against a later amount due? Also specify when the money will be refunded and which documented services or costs, if any, may be deducted.

Set out separately what happens if the prospective franchisee withdraws, if you reject their application or if an agreed condition is not met. Avoid sweeping standard terms stating that all payments are always forfeited.

Manage promises, costs and conditions together

Designate one person with authority to approve reservations and other preliminary commitments. Employees and external recruitment partners must understand the limits of their authority. Internal instructions alone will not provide sufficient protection if external communications give the prospective franchisee a different impression.

Also agree who will bear the costs of advisers, site visits and investigations. Do not encourage a prospective franchisee to commission fit-out work or enter into an unconditional lease while the basis for the relationship remains unresolved.

If setting up the franchise depends on funding or approval of premises, make the conditions specific: who decides whether they have been met, what evidence is required and what deadline applies? State what happens if a condition is not met.

Follow every important meeting with a written summary of what has been agreed, what remains under negotiation and who is responsible for each action. This builds trust within the franchise network, but does not replace legal review.

Practical takeaway: Put a short, legally reviewed framework for negotiations in place before promising a territory or accepting money. Make every commitment clearly defined, understandable and documented.