Buying a franchise: reviewing a confidentiality agreement

Before providing financial information or details of its know-how, a franchisor may ask you to sign a confidentiality agreement. Protecting genuinely confidential information is legitimate practice in franchising. However, this document creates obligations even if you ultimately decide not to buy the franchise. Your review should ensure that you can assess the proposal with independent advisers, without accepting vague or disproportionate commitments.

1. Distinguish confidential material from general information

Do not treat the agreement as a mere formality. Start by reading the definition of ‘confidential information’. It may include recipes, production processes, commercial terms, customer lists, financial analyses and unpublished expansion plans. However, not all information is of the same nature or necessarily needs the same protection.

Ask for clear exclusions covering information that:

• Is already publicly available through no breach on your part.
• Was lawfully in your possession before you contacted the network.
• Was lawfully obtained from a third party without a duty of confidentiality.
• Was developed independently by you, without using the confidential information.

Also check whether oral presentations are covered and how their confidential content is identified afterwards. A blanket reference to ‘all information exchanged’ makes day-to-day compliance harder and complicates proving exactly what was provided.

The permitted purpose of use should be specific: assessing the potential business relationship and the associated financing. Receiving information does not give you the right to exploit it commercially or pass it on to another network.

2. Ensure your independent advisers can access the information

An agreement prohibiting all disclosure to third parties may prevent a meaningful assessment of the investment. Before signing, ask for an express provision allowing necessary disclosure to a lawyer, accountant and, where needed, a finance provider or specialist adviser.

Clarify whether professional duties of confidentiality are sufficient or whether the recipient must give a separate undertaking. Also examine whether you are accepting liability for everything your advisers do, regardless of your own actions. The scope of that liability requires careful legal assessment, not simply the addition of names to a list.

Practical example: you receive a schedule of operating costs, but the agreement prohibits sharing it with your accountant without prior approval. Obtain approval or have the clause amended before sending the schedule. Do not assume that the need for financial due diligence automatically overrides the contractual restriction.

Also ensure there is an exception for disclosures required by law or a competent authority. Any obligation to notify the franchisor in advance should apply only where such notification is legally permitted.

3. Check the duration, return of records and consequences of a breach

The length of the discussions is not the same as the duration of the confidentiality obligations. Ask for clarity on when each obligation begins, when it ends and what happens if you reject the proposal. For genuine trade secrets, protection may remain essential for as long as the information remains secret. This does not justify accepting an indefinite commitment covering every item of information without scrutiny.

Read the procedure for returning or deleting documents carefully. It must be workable for emails, backups and advisers’ records. Ask for appropriate exceptions for legally required retention and records needed for evidential purposes, subject to continuing confidentiality.

Identify any penalty clause, obligation to pay compensation or liability for costs. Ask what conduct triggers each consequence and whether the wording extends even to minor procedural errors. Do not rely on the expectation that a court will later remedy a disproportionate term.

Finally, make sure the agreement does not introduce an obligation to buy, negotiate exclusively or pay a fee. These are separate commitments and require their own assessment.

4. Understand the Greek legal framework

Greece has no dedicated law providing a comprehensive framework for franchising, nor a specific statutory regime requiring pre-contractual disclosure for franchises. The general rules of the Greek Civil Code apply, including Articles 197 and 198 on good faith in negotiations and pre-contractual liability. Depending on the issue, rules on commercial law, unfair competition and competition law also apply.

Specific protection for trade secrets is provided by Law 1733/1987, as amended by Law 4605/2019. Not every item described as ‘confidential’ in a contract automatically qualifies as a trade secret under the law. Contractual confidentiality and statutory trade secret protection are related but distinct grounds for protection.

The European Code of Ethics for Franchising provides for full and accurate written disclosure within a reasonable time before a commitment is made. It is a self-regulatory framework, not Greek law. In practice, confidentiality should not become an obstacle to independent due diligence.

Practical takeaway: before signing, secure a clear definition of confidential information, access for your advisers and a workable records management procedure. Then obtain a legal review of the liability you are taking on.