Buying a franchise in France: how to check the DIP

Joining a franchise network is not a decision to base on a sales presentation alone. The pre-contractual disclosure document, known in France as the DIP (document d’information précontractuelle), is an essential starting point for due diligence, but it is no guarantee of success. Before buying a franchise in France, your aim should be to cross-check its contents against the contractual documents and franchisees’ experience on the ground. Here is how to organise those checks before making any commitment.

1. Confirm receipt of the DIP and check the timetable

In France, pre-contractual disclosure is governed in particular by Article L. 330-3 of the French Commercial Code, introduced by the Act of 31 December 1989, known as the ‘Doubin Law’. It covers arrangements in which a business makes a trade name, trademark or trading identity available in return for an undertaking to operate on an exclusive or near-exclusive basis. Franchise agreements generally fall within this framework.

Where these rules apply, the DIP and draft agreement must be provided at least twenty days before the agreement is signed or, where applicable, before any advance payment is made, for example to reserve a territory. This statutory period cannot simply be shortened because the prospective franchisee wants to open quickly.

Article R. 330-1 of the French Commercial Code sets out what the document must contain. It must enable the prospective franchisee to make an informed commitment, providing truthful information about the company, the network, the market and the main contractual terms.

In practice:

• keep a dated copy of the DIP, the draft agreement and any appendices received;
• record the date of receipt and the date of your first planned commitment or payment;
• identify missing documents and request them in writing;
• have any reservation agreement reviewed before signing it or paying.

The twenty-day period is a minimum period for consideration, not a requirement to sign as soon as it expires. Nor does it provide a general right to withdraw after signing.

2. Check the company and the reality of the network

Start by identifying exactly which company you will be contracting with. The trading name used in meetings may differ from the company that will sign the agreement and collect the royalties. Check its identity, history and the information relating to the trademark and its right to license it.

The DIP includes the franchisor’s annual accounts for the last two financial years. Ask your accountant to review them: profitability, cash flow, debt and changes in equity help indicate whether it can deliver the support promised. However, a franchisor’s strong accounts do not prove that your future outlet will be profitable.

Next, examine the information about the network. Among other things, the DIP must state how many businesses left the network during the year before it was issued, specifying whether their agreements expired, were terminated or were annulled.

Do not automatically draw conclusions from a departure. Instead, ask for an explanation supported by documentation, then speak to several franchisees: recent joiners, established operators and, where you can identify them, former members. Ask comparable questions about training, support, unexpected costs and the initial trading period. Cross-checking in this way often reveals things that reading the document alone cannot explain.

3. Distinguish statutory disclosures from financial evidence

The DIP must describe the general and local market concerned, as well as its prospects for development. This does not replace your own assessment of the proposed location: footfall, competition, accessibility, buying habits and rent levels all need to be checked for your particular project.

Similarly, the franchisor has no general obligation to provide a profitability forecast. If it supplies projections, ask what assumptions they use and where the figures come from. An average turnover figure is of limited use unless you know which outlets it covers, how long they have been trading and how their formats differ.

Draw up a simple checklist:

Information received	Checks to carry out
Quoted investment	Identify which items are included, excluded or subject to quotation
Turnover figures presented	Ask which period and reference outlets they cover
Royalties	Check the basis of calculation, minimum payments and due dates
Cash requirements	Model a slower start with your accountant

The DIP also specifies the nature and amount of expenditure and investment specific to the trading identity or brand before operations begin. This does not mean it provides your complete budget: you must also allow for the lease deposit, your remuneration as the business owner and funding for the operating cycle.

4. Resolve discrepancies before committing

Finally, compare the DIP with the draft agreement and the promises made during the sales process. Any support promised verbally should be checked against the services actually provided for: their scope, frequency, conditions of access and any additional charges.

Keep a list of outstanding questions, together with the answers received and supporting documents. Important answers should be put in writing; where an answer amounts to a commitment, ask your lawyer to check that it is properly reflected in the agreement.

An incomplete or misleading DIP does not automatically result in the agreement being annulled. Available remedies depend, among other things, on the breach, its influence on your consent and the loss you can demonstrate. Keep all correspondence and seek legal advice promptly if you discover an irregularity.

Key takeaway: before signing, insist on verifiable answers to the questions that matter. Receiving a DIP is not the same as checking it.