Buying a franchise: checks before paying a deposit

Your first payment towards buying a franchise business may come before the final agreement: a territory reservation fee, an advance on the initial franchise fee or a fee for an initial assessment. But it is not merely a formality. In franchising, transparency starts before any financial commitment. Prospective franchisees need to know exactly what they are paying for, who is making a commitment to them and when they can recover their money.

1. Clarify what the payment covers

Calling a payment a ‘deposit’ is not enough to establish its implications. Ask for a written description of its purpose and a breakdown of each charge. Temporarily reserving a territory is different from paying for a service that will be provided regardless of whether the franchise relationship goes ahead.

Before paying anything, ask for answers to the following:

• Which company is receiving the payment, and in what capacity?
• What exactly will you receive in return?
• Will the amount be credited towards the initial franchise fee, or is it an additional cost?
• Are applicable taxes included, and what invoice or receipt will be issued?
• In what circumstances will all or part of the payment be refunded?

Verify the identity of the company you are contracting with and who is legally authorised to represent it, using the information available from Greece’s General Commercial Registry (GEMI). If an intermediary is collecting the payment, ask for evidence of their authority to do so. Payment to anyone other than the party signing the agreement requires a clear written explanation.

2. Understand Greece’s disclosure framework

Greece has no dedicated law providing a comprehensive framework for franchising, nor a specific statutory pre-contractual disclosure document. This does not mean that pre-contractual disclosure is optional or that misleading assurances are permitted.

Articles 197 and 198 of the Greek Civil Code concern good faith and accepted business practice during negotiations, and liability for damage culpably caused during that process. The agreement is also governed by the general provisions of the Civil Code and, depending on the issue, by rules on commercial law, unfair competition and competition law.

The European Code of Ethics for Franchising calls for full and accurate written disclosure within a reasonable time before a binding agreement is signed. It is a self-regulatory framework, not a generally applicable Greek law. Check whether the franchisor is committed to complying with it through membership of an association or a reference in the contract.

Do not assume that you have a consumer right to withdraw. Buying a franchise for business purposes is not automatically treated as a consumer purchase. Your ability to withdraw requires specific legal advice and clear contractual terms.

3. Carry out proper due diligence before committing

Before making a non-refundable payment, ask for a draft of the final agreement and any schedules setting out financial obligations. A short reservation agreement is no substitute for reviewing the terms under which you will operate for years to come.

The due diligence documents should allow your solicitor and accountant to assess:

• the franchisor’s right to license use of the trade mark,
• initial and recurring charges,
• compulsory purchases, equipment and fit-out requirements,
• conditions for approving premises and starting operations,
• the term, renewal provisions and conditions for ending the franchise relationship.

If financial projections are presented, ask for the assumptions behind them: rent, payroll, supply costs and the working capital required. Clarify whether they are based on actual figures from comparable outlets or on estimates. Confidentiality can be addressed through a non-disclosure agreement; verbal promises should not replace due diligence.

4. Link refunds to specific events

The phrase ‘refundable if we do not proceed’ leaves plenty of room for disagreement. Negotiate objective conditions, evidence requirements and a deadline for repayment.

For example, agree what happens if finance is not approved, suitable premises cannot be found or the necessary permits cannot be obtained. These circumstances do not automatically create a right to a refund: they must be set out in the agreement, together with the steps each party must take.

If deductions for expenses are allowed, ask for the services, supporting documents and maximum agreed amount to be specified. Also check whether the payment is described as ‘earnest money’ (arravonas), as this term may have different legal consequences from a simple advance payment.

5. Define the territory reservation precisely

A reservation needs geographical boundaries, start and end dates, and a clear obligation on the franchisor’s part. Will the franchisor refrain from entering into new agreements in the territory, or merely give your application priority?

Clarify whether the reservation covers company-owned outlets, other franchisees and different sales channels. A temporary reservation does not amount to permanent exclusivity. Any territorial restrictions need to be reviewed under Greek Law 3959/2011 and, where applicable, Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Regulation (EU) 2022/720.

Practical takeaway: Pay only once you have a signed agreement explaining what you will receive, how long the commitment lasts and the refund terms. Keep copies of offers, correspondence, invoices and receipts, and arrange an independent review before, not after, transferring the money.