Buying a franchise in France: safeguarding reservation fees

Reserving a location may feel reassuring when you are considering joining a franchise network. Yet a payment made before the final agreement is signed can sometimes commit you to more than you expect. Before paying, check exactly what the franchisor is reserving, for how long and in what circumstances your money will be returned.

1. Identify what you are paying for before signing the agreement

A document headed ‘reservation’, ‘option’ or ‘preliminary agreement’ does not have a fixed legal effect. Its content, rather than its title, determines your obligations. It may set out a negotiation period, temporarily reserve a location or provide for preparatory services.

Ask for a written description of what you will receive in return for your payment. A simple promise to ‘hold your application’ does not make clear what you are getting.

In particular, ask for confirmation of:

• the location concerned and the exact reservation period;
• the steps the franchisor undertakes to take;
• any services included in the payment;
• your obligations during this period;
• the consequences if the final agreement is not signed.

Also distinguish between a reservation and a commitment to join the network. One clause may require you to pursue certain steps without obliging you to sign the franchise agreement. Another may require you to pay compensation if you withdraw. This distinction warrants legal review before you agree to anything.

2. Observe the statutory waiting period before making any payment

In France, Article L. 330-3 of the Commercial Code, introduced by the law of 31 December 1989 known as the Doubin Law, governs pre-contractual disclosure where a party makes a trading name, trade mark or trading identity available while requiring an exclusive or near-exclusive commitment in the conduct of the business. Article R. 330-1 specifies the contents of the pre-contractual disclosure document, known in France as the DIP.

Where these rules apply, the DIP and the draft agreement must be provided at least twenty days before the agreement is signed or before any payment required ahead of signing is made. A reservation payment therefore cannot be used to bypass this waiting period.

Article L. 330-3 also provides that, where a payment is requested before signing, particularly to reserve a territory, the services supplied in return must be specified in writing. The parties’ respective obligations in the event of withdrawal must also be set out in writing.

Keep a documented timeline: receipt of the DIP, receipt of the draft agreement, correspondence about the reservation, signing and payment. If the franchisor asks for an immediate bank transfer so that you do not ‘lose the opportunity’, put the payment on hold and have the timetable checked.

This pre-contractual disclosure period is not a general right to cancel after signing. Do not assume that you can recover your payment simply by changing your mind a few days later.

3. Set out the refund and fee-crediting rules in writing

The crucial issue is what happens to the money you pay. Will it be credited towards the initial franchise fee if you sign? Does it pay for a separate service? Can the franchisor retain it if the project falls through? Ask for contractual provisions covering each situation, rather than verbal assurances.

Ensure that the following scenarios are addressed separately:

• you voluntarily withdraw from the project;
• the franchisor ultimately rejects your application;
• no suitable premises are found before the deadline;
• an authorisation needed to open the business is not obtained;
• the franchisor abandons the proposed location.

For each scenario, specify the refundable amount, the supporting documents required, the refund deadline and any deductions. If the franchisor retains any fees, their purpose and the method used to calculate them must be clear.

Avoid wording such as ‘the payment is non-refundable in all circumstances’ without having it reviewed by a lawyer. Its effect and validity depend, among other things, on the legal classification of the payment and the agreement. Calling a payment an ‘advance payment’ or ‘compensation’ does not automatically give it the legal effects suggested by that label.

Finally, obtain a worked example showing how the payment will be credited towards the initial franchise fee, including the applicable tax treatment. This will help you avoid counting the same payment twice in your acquisition budget.

4. Set a clear expiry date and exit procedure

A reservation should have an identifiable end date. Specify what happens on that date: the agreement expires, it is extended in writing or another agreed mechanism applies. Avoid allowing an informal extension to keep your obligations in place indefinitely.

Also ask how to give notice of withdrawal or request a refund: who to contact, which address to use, how to send the notice and which documents to enclose. Keep the signed document, proof of payment and correspondence relating to the promised services.

Before paying, have the reservation agreement and the draft franchise agreement reviewed together. The aim is to identify contradictions, particularly where one document promises a refund that the other appears to rule out.

Key takeaway: only pay reservation fees once the applicable statutory waiting period has elapsed, and on the basis of a written agreement defining precisely what you receive in return, when the reservation ends and what happens to your money if the project does not go ahead.