Buying a franchise: checking insurance requirements

Insurance for your premises may appear as a brief paragraph in the franchise agreement. But a requirement for “adequate cover against all risks” is not enough to tell you either what it will cost or how well you will be protected. Before joining a franchise network, check whether its insurance requirements can actually be met, on what terms and how much you may have to pay yourself.

1. Distinguish contractual requirements from legal obligations

Greece has no specific law providing a comprehensive framework for franchising, nor a dedicated register of franchise agreements. There is also no specific mandatory pre-contractual disclosure document required for every franchise purchase. The general provisions of the Greek Civil Code on contracts and obligations apply, including good faith in negotiations, alongside other rules governing the particular business activity.

This means there is no standard insurance package imposed on every franchisee simply because they operate a franchise. However, statutory insurance obligations may arise from the business activity, the characteristics of the business or other applicable provisions. These need to be checked separately.

The franchisor may also require particular types of cover under the contract. Ask for a written breakdown distinguishing between:

• Insurance required by applicable law.
• Additional insurance required by the franchise agreement.
• Optional cover recommended for your own protection.

This distinction helps your lawyer and insurance intermediary assess exactly the same obligation, without treating every network requirement as a legal requirement.

2. Turn a general clause into a detailed checklist

Do not settle for an overall premium quote. First, ask for the insurance annex to the agreement or a detailed schedule of requirements. For each type of cover, this should specify what is insured, the indemnity limit, the excess and the start date.

Depending on the business, check whether cover is required for buildings or tenant improvements, equipment, stock, public liability, product liability or business interruption. These are illustrative categories, not a mandatory list for every outlet.

Also clarify who is insured. The franchisor’s policy does not automatically cover your own independent business. If a group scheme is proposed, ask for written confirmation that it includes the correct company, the specific address and your actual business activity.

Check whether the limits apply to each outlet or are shared by all participants. A shared aggregate limit may be reduced by claims made by other insured businesses. Ask who receives any claim payment and whether someone other than your company is named as the recipient, for example in relation to financed equipment.

3. Test the exclusions against a realistic scenario

The name of a type of cover does not prove that it protects you against every incident. Read the full policy wording, not just the insurance certificate. The excess is the portion of a loss you must bear yourself, while exclusions identify circumstances in which no claim payment may be made.

Use a hypothetical scenario: a breakdown damages equipment and the outlet closes temporarily. Ask for a written explanation of:

• Whether the specific cause of the damage is covered.
• Whether the policy pays for repair, replacement or another agreed valuation basis.
• Whether business interruption cover is triggered and on what conditions.
• Whether there are waiting periods, time limits or specific sub-limits.
• Which expenses you must continue paying without reimbursement under the policy.

Do not assume that business interruption insurance covers every loss of turnover. Whether it responds depends on the specific policy terms. Equally, do not assume that ongoing franchise royalties are suspended because the outlet has temporarily closed: this requires a separate check of the agreement.

4. Calculate the cost of protection before committing

Give the network’s final requirements to an appropriately licensed insurance intermediary and ask for a quote with clearly stated assumptions. Accurately declare how the premises will be used, the equipment, stock and protective measures. A cheap quote based on inaccurate information is not a reliable basis for your budget.

Include premiums, any excesses you may have to pay and any protective installations required. Check when cover must begin: fit-out work and equipment deliveries may take place before the outlet opens.

Ask for clear rules on how to provide evidence of cover, renewal deadlines and the consequences of failing to comply. If the network requires a particular scheme, clarify who collects payment, who handles claims and whether equivalent alternative cover is permitted. Your lawyer should separately review any clauses that transfer liabilities to you which the policy excludes.

Practical takeaway: before signing, compare the agreement with the insurance quote line by line. Every obligation should correspond either to confirmed cover or to a risk you understand and can afford to take.