Buying a franchise: check the DIP before you sign

The pre-contractual disclosure document, known in France as the DIP (document d’information précontractuelle), is neither a sales brochure nor a form to complete. Its purpose is to help you make an informed decision about joining a franchise network. Before signing, your task is to check what you have received, identify inconsistencies and obtain any clarification you need. Here is a practical way to organise these checks without mistaking disclosure for a guarantee of success.

1. Understand what the Doubin Law requires

In France, pre-contractual disclosure to prospective franchisees is governed in particular by Article L. 330-3 of the French Commercial Code, introduced by the law of 31 December 1989, known as the Doubin Law. Article R. 330-1 specifies the information that must be provided.

These rules apply where a party makes a trade name, trademark or trading identity available while requiring an exclusive or near-exclusive commitment in carrying on the business. They therefore cover more than agreements labelled as ‘franchise’ agreements: the actual terms of the relationship matter.

The franchisor must provide accurate information that enables the prospective franchisee to make an informed commitment. The DIP and draft agreement must be supplied at least twenty days before the agreement is signed or, where applicable, before any payment required ahead of signing.

This is a minimum period for consideration, not a cooling-off period after signing. Receiving the documents does not oblige you to proceed. Nor do these requirements replace the general rules of contract law, particularly those relating to consent and pre-contractual disclosure.

2. Check the documents by category

Start by making an inventory of the documents received. For each category, record the relevant document, its date and any outstanding questions.

• The franchisor’s identity and trademark rights: check that the entity described is the one that will sign the agreement and that the trademark information is included.
• Business history and accounts: look for an account of the company’s experience and the annual accounts for the last two financial years, subject to the special arrangements applicable to certain listed companies.
• The market: the documents must describe the general and local market for the products or services concerned, along with its development prospects. A national overview alone does not satisfy the requirement for local information.
• The franchise network: examine the list of businesses, how they operate and the information about businesses in France bound by agreements of the same type. Where there are more than fifty, the prescribed details cover the fifty businesses closest to your proposed location.
• Departures from the network: identify how many businesses left the network during the year before the document was supplied, distinguishing between agreements that expired, were terminated or were annulled.
• The proposed commitment: identify the agreement’s duration, the conditions for renewal, termination and transfer, the scope of any exclusivity provisions, and the nature and amount of brand-specific expenditure and investment required before trading begins.

The DIP is not required to contain a turnover forecast. Do not treat a market overview as a promise of results or as a comprehensive feasibility study for your proposed business.

3. Use the twenty days without rushing

Keep dated evidence of receipt and a copy of every file supplied. Read any electronic acknowledgement of receipt carefully before signing: you should not confirm that you have received documents that are missing.

Next, create a simple table: information stated, supporting document, question, written answer. This helps prevent important details from getting lost in a series of telephone calls.

Compare the DIP with the draft agreement. If the stated costs, exclusivity provisions or terms of the commitment differ, ask which version takes precedence and insist on clarification in the documents before deciding.

Involve your lawyer early enough to review the documents properly. An accountant can assess whether the financial information is consistent. Their roles are complementary.

Finally, do not automatically schedule signing for the day after the minimum period ends. If important documents are missing or the draft agreement changes substantially, ask your legal adviser how this affects the timetable and postpone your commitment if necessary.

4. Address omissions before committing

Send the franchisor a single, specific written request covering all outstanding points. Refer to the relevant sections, identify the documents you expect to receive and keep the replies with the original disclosure pack.

An omission or misleading information does not automatically result in the agreement being annulled. The consequences depend, among other things, on the nature of the breach, its effect on your consent and any loss suffered. It is better to resolve uncertainty before signing than to rely on legal remedies later.

Key takeaway: before making any commitment, ensure you have a checked DIP, a consistent draft agreement and written answers to the questions that matter to your decision. The twenty days are a statutory minimum, never a deadline for deciding.