Buying a Franchise: Checking Personal Guarantees

Joining a franchise network through a company does not always keep your personal assets outside the agreement. If the franchisor asks for a personal guarantee, you take on a separate obligation for company debts. Before choosing a brand and committing, consider not only what the business will pay, but also what you could be required to pay yourself.

1. Distinguish signing for the company from committing personally

You may sign an agreement as the company’s legal representative and, elsewhere in the same document, as an individual guaranteeing its obligations. The second capacity is not a mere formality. It may create personal liability, even if your chosen company structure generally offers limited liability.

Ask for the full draft agreement, including schedules and separate guarantee declarations. Look for wording such as ‘guarantor’, ‘as principal debtor’, ‘joint and several liability’ and ‘waiver of defences’. These terms do not all have the same meaning or consequences.

Also clarify who benefits from the guarantee. Does it cover only the franchisor’s claims, or also claims by an associated company supplying products? A guarantee given to a bank or landlord is a separate commitment and needs a separate review. List all personal guarantees and security arrangements in a table so that you can assess your total exposure rather than each signature in isolation.

2. Understand which Greek legal provisions apply

Greece has no specific law comprehensively regulating franchising as a distinct type of contract. Nor is there a specific mandatory pre-contractual disclosure document or a register of franchise agreements. The general provisions of the Greek Civil Code on contracts, obligations and good faith apply, alongside other rules depending on the subject matter of the agreement.

Articles 847 onwards of the Civil Code are particularly relevant to guarantees. Under Article 849, the guarantor’s declaration must be in writing. A guarantee clause within the agreement therefore needs just as much attention as a separate guarantee document.

Another key provision is the defence requiring prior enforcement against the principal debtor under Article 855, known in Greek as enstasi dizisis. In principle, this allows the guarantor to refuse payment until enforcement against the principal debtor has been attempted unsuccessfully. There are exceptions, however. Article 857 provides, among other things, for waiver of this defence, particularly where someone guarantees an obligation as principal debtor. Ask a lawyer to explain whether the particular clause allows the creditor to pursue you directly.

Competition rules, such as Law 3959/2011 and Regulation (EU) 2022/720 on vertical agreements, concern other aspects of the relationship. They do not set a general cap on personal guarantees.

3. Negotiate the amount, scope and duration

The phrase ‘for all present and future debts’ needs clarification. Ask for the categories of claims covered to be specified: the initial franchise fee, ongoing royalties, product purchases, interest, damages or legal costs. Do not assume the guarantee covers only unpaid invoices.

Before signing, discuss the following points specifically:

• Overall cap: make sure it is clear whether this includes interest and costs or whether they are added on top.
• Specified obligations: link the guarantee to an identifiable agreement rather than vaguely to every business relationship between the parties.
• Time limits: distinguish the deadline for debts covered by the guarantee to arise from what happens to existing claims.
• Future changes: clarify whether renewal, expansion or a new agreement requires your fresh consent.
• Notice of late payments: agree that you will receive prompt written notice when the company fails to pay.

These are matters for negotiation, not automatic rights secured by specific franchise legislation. Any proposed cap should be assessed against what you can realistically afford, not just optimistic sales forecasts.

4. Establish how and when you will be released

Leaving the management team or selling your shares in the company does not, in itself, bring an existing personal guarantee to an end. Nor does the end of the franchise relationship necessarily extinguish debts incurred earlier.

Ask for a clear release procedure: who approves it, which outstanding balances must be paid and whether another guarantor must replace you. If a release is agreed, you need written confirmation from the beneficiary of the guarantee, setting out its terms clearly. An assurance from a new business partner that they are ‘taking everything on’ does not amount to a release from your obligations to the creditor.

Practical takeaway: before signing anything in a personal capacity, make sure you can answer four questions in writing: which debts am I liable for, up to what amount, for how long, and through what procedure can I be released?