Buying a franchise: include conditions precedent

Signing a franchise agreement while funding or premises remain uncertain can leave you committed before you are able to open. To join a franchise network on a sound footing, consider negotiating conditions precedent. These make the obligations concerned conditional on a future, uncertain event that is precisely defined in the contract.

1. Distinguish pre-contractual disclosure from contractual protection

In France, franchise agreements are governed, among other things, by general contract law. There is no single statutory framework covering every aspect of franchising, but certain obligations are specifically regulated, including pre-contractual disclosure.

Article L. 330-3 of the French Commercial Code, introduced by the Doubin Law of 31 December 1989, applies where a business makes a trade name, brand or trading identity available while requiring an exclusive or near-exclusive commitment in relation to the activity. In these circumstances, the pre-contractual disclosure document and draft agreement must be supplied at least twenty days before signing or, where applicable, before any advance payment. Article R. 330-1 specifies the information that must be provided.

This period neither guarantees that you will obtain a loan nor gives you a general right to withdraw after signing. Once committed, you cannot assume that a bank's refusal to lend will automatically release you.

A condition precedent addresses this separate need. Governed by Articles 1304 onwards of the French Civil Code, it allows an obligation to depend on a future, uncertain event. The wording must establish which obligations remain on hold and what happens if the event does not occur.

2. Identify the events essential to opening

Do not add conditions unnecessarily: focus on the elements without which your project cannot reasonably proceed. Three situations deserve particular attention.

• Securing finance. The agreement can be made conditional on obtaining a loan with defined terms, rather than a vague ‘positive response from the bank’.
• Entering into a commercial lease. If you have not yet secured premises, specify the property concerned or its essential characteristics, together with acceptable lease terms.
• Obtaining the necessary permissions. Depending on the business activity and any proposed works, identify the permissions actually required and the relevant milestone: submitting an application, obtaining permission or another appropriate stage agreed with your legal adviser.

Distinguish the franchisor's internal approval from permission granted by a public authority. Approval of plans does not replace permission to carry out works where this is required.

Also avoid wording that makes your commitment depend solely on your own wishes, such as ‘if the applicant ultimately decides to proceed’. A condition dependent entirely on one party's will may raise questions about its validity. The aim is to cover an identifiable obstacle, not to create an informal option to change your mind.

3. Draft a verifiable condition with a clear timetable

A useful clause must make it possible to establish clearly whether the condition has been fulfilled. For finance, specify in particular:

• the amount sought and the loan term;
• the maximum acceptable interest rate and any permitted security or guarantees;
• the deadlines for submitting applications and securing finance;
• the supporting documents to be supplied and the person to whom notice must be given.

Also define what counts as securing a loan: an agreement in principle does not carry the same weight as a firm offer meeting the agreed criteria.

The timetable must allow enough time to complete the necessary steps. Set out how to request an extension, and formalise any extension in writing before the deadline rather than relying on a telephone conversation.

This protection also depends on you acting diligently. Under French civil law, a condition precedent may be deemed fulfilled if the party with an interest in its failure has prevented it from being fulfilled. Keep copies of submitted applications, acknowledgements of receipt, requests for further information and banks' decisions. Do not undermine an application in an attempt to get out of the agreement.

4. Align the contracts and clarify what happens to payments

A condition in the franchise agreement does not automatically protect you against commitments made to a landlord, supplier or building contractor. Have the documents and their deadlines reviewed together.

Ask for a simple table showing each signed commitment, the applicable condition, the deadline, any payment due and the consequences if the condition is not fulfilled. This will help you spot, for example, a lease that has become unconditional while funding remains uncertain.

The agreement must also clarify what happens to money already paid if the condition is not fulfilled: whether it is returned, the deadline for repayment and how any separate services already provided will be treated. Do not accept any deduction without understanding its basis and how it relates to the condition.

Key takeaway: before signing, have the conditions precedent reviewed alongside all related commitments. Each major obstacle should be linked to a clearly defined event, a realistic deadline and consequences set out in writing.