Buying a franchise: setting clear terms for a reservation agreement

Has a franchise brand offered to hold your application open while you look for premises or finalise your plans? This initial commitment deserves just as much attention as the final agreement. In franchising, a reservation agreement can provide a useful framework for the preparatory stage, but it does not automatically guarantee that your business will open. The key is to understand exactly what each party is promising, for how long and with what financial consequences.

1. Establish what you are actually reserving

A reservation agreement, sometimes called a preliminary agreement, is not a compulsory step in every franchise application. Its terms vary: it may provide for an application to be held open temporarily, a territory to be reserved or preparatory services to be delivered. Its title alone therefore does not determine its legal effect.

First, ask the franchisor to spell out its specific commitment. Will it refrain from selecting another applicant for the same opportunity? Must it support you with certain steps? Can it still refuse to admit you to the network, and on what grounds?

Then examine your own commitment. Does the document simply require you to continue discussions, or does it already include a promise to sign the final agreement? Does it oblige you to stop talks with other brands? These differences significantly affect your freedom to decide.

A reservation does not necessarily mean final acceptance. Ask for clarification of any approvals still required, who is responsible for them and which documents must be supplied. Wording such as “subject to project approval” remains too vague if no one knows how that approval will be obtained.

2. Follow the legal requirements before making any commitment

In France, pre-contractual disclosure is governed in particular by Articles L. 330-3 and R. 330-1 of the French Commercial Code, under the framework commonly known as the Doubin Law. These rules apply where a party makes a trade name, trade mark or brand available while requiring an exclusive or near-exclusive commitment in the conduct of the business.

Where these conditions are met, the applicant must receive a pre-contractual disclosure document, known in France as the DIP, together with the draft agreement, at least twenty days before signing or, where applicable, before making any payment required in advance. A reservation agreement must not be used to bypass this protection. Have the timetable applicable to the proposed preliminary agreement checked before you sign or pay.

The law also provides that, where money is requested before the agreement is signed, particularly to reserve a territory, the services supplied in return must be specified in writing, along with each party’s obligations if either withdraws.

This advance disclosure period is not a general right to cancel after signing. Do not assume that you will be free to withdraw from your commitment. General contract law also applies; a lawyer can check the document’s precise legal effect.

3. Link every payment to something clearly defined in return

Before making any payment, ask for a written breakdown of what it covers: assessing the project, help with finding premises, initial training sessions or the reservation itself. A blanket reference to “administration fees” does not allow you to assess the work promised.

For each service, ask for clarification of:

• its scope and expected outcome, distinguishing support from a guarantee of success;
• who is responsible for delivering it;
• the delivery timetable;
• the evidence that will show it has been provided.

Also clarify how the payment will be treated if the project goes ahead. Will it be deducted from the initial franchise fee or charged in addition? When will that deduction be shown? Ask for a sample written breakdown to avoid paying twice for the same service.

Finally, distinguish payments to the franchisor from costs incurred with third parties. Ending the reservation does not automatically entitle you to reimbursement of your advisers’ fees or studies commissioned separately.

4. Plan for expiry and withdrawal from the project

The preliminary agreement should make clear when the reservation starts and ends. Check whether an extension requires written agreement, involves an additional payment or happens automatically. Avoid a reservation period that keeps running while your project is on hold.

Make sure the main scenarios are addressed separately: you withdraw, the franchisor rejects your application, no suitable premises are found, or both parties decide to stop. For each scenario, the document should specify which sums will be refunded or retained, the reasons for this and the deadline for payment.

Do not rely on a verbal assurance that “we’ll work something out”. A clause allowing funds to be retained in every case warrants legal scrutiny, particularly in light of the services actually promised and delivered.

Key takeaway: do not pay to reserve a mere possibility. Before signing, insist on a defined commitment, a clear duration, services whose delivery can be verified and written rules on what happens to your payment.