Buying a franchise: reviewing the non-compete clause

Buying a franchise may restrict not only how you run your new outlet, but also your other business options. A non-compete clause may cover an existing business, shareholdings or future activities. In franchising, protecting know-how is a legitimate aim, but this does not mean that every restriction is automatically valid. Before signing, you need a detailed review of the clause and its practical consequences.

1. List the activities that are prohibited

Do not rely on the heading ‘non-compete’. Read the definition of competing activity and every provision it refers to. A ban on running an outlet selling directly competing products is one thing; a ban on holding any interest in a business operating in a broadly related field is quite another.

Check whether the restriction covers:

• Your personal activities or only the company signing the agreement.
• Managing, advising or working for another business.
• Any shareholding or business interest, including a small passive investment.
• Online sales and activities outside the outlet’s local area.
• Existing businesses that were operating before the franchise relationship began.

Prepare a list of your current professional and business activities and give it to your lawyer. If, for example, you already run an online shop selling some similar products, ask for an explicit written exception if this is agreed. A verbal assurance that ‘we have no problem with that’ does not provide the same contractual clarity.

Also check whether you are required to ensure that relatives or affiliated companies comply. Referring to third parties does not automatically make them parties to the contract, but the clause may seek to place an obligation on you.

2. Distinguish contractual requirements from the law

Greece has no specific law comprehensively regulating franchising as a distinct type of contract. The general provisions of the Greek Civil Code on contracts and obligations apply, alongside the rules on good faith and the prohibition of abuse of rights. Depending on the issue, intellectual property and unfair competition rules also apply.

Competition law is particularly important for non-compete clauses: Greek Law 3959/2011 and, where the conditions for its application are met, Article 101 of the Treaty on the Functioning of the European Union. Regulation (EU) 2022/720 provides a block exemption for certain vertical agreements, subject to specific conditions. It is not a blanket approval of every franchise agreement.

Nor does Greece have a mandatory pre-contractual disclosure document or a specific statutory waiting period before signing. You should therefore request the full agreement and its annexes well in advance. The general duty of good faith during negotiations still applies, particularly under Article 197 of the Greek Civil Code.

3. Check the duration, scope and genuine necessity

The duration of the restriction deserves particular attention. Under Regulation 2022/720, non-compete obligations of indefinite duration or lasting more than five years are generally excluded from the block exemption. There are, however, specific provisions and exceptions, including for certain renewal arrangements and the use of the supplier’s premises.

Exceeding five years does not automatically make the clause invalid. It means that simply checking the dates is not enough: the agreement, the applicable conditions and the need to protect the know-how being transferred require an individual assessment.

Ask for a clear distinction between restrictions that apply during the franchise relationship and those that continue after it ends. For a post-contractual non-compete restriction, the Regulation’s exemption is subject to strict conditions that must all be met. These include the restriction being necessary to protect the know-how transferred, being limited to the premises and land from which the buyer operated, and lasting no more than one year.

Confidentiality is a separate obligation. Protecting know-how that is not publicly available is not the same as imposing a general ban on pursuing a trade or profession. Ask your lawyer to assess the two clauses separately, even if they appear in the same paragraph.

4. Negotiate clear exceptions and consequences

Turn general concerns into specific proposals. Ask for a precise description of competing products or services, a record of permitted existing activities and a written approval procedure for acquiring new business interests. If the franchisor’s consent is required, propose clear criteria and a deadline for a response.

At the same time, read the provisions setting out the consequences of a breach: a contractual penalty, damages, termination or a combination of remedies. Check whether there is provision for notice and an opportunity to remedy the breach where possible. Do not assume that a disproportionate penalty simply ceases to apply on its own; challenging it in court takes time and money.

Before signing, ask for a short written note answering three questions: what is prohibited, for how long, and with what consequences? Practical takeaway: commit only when you can explain in plain language which business and professional options you are keeping open and which you are restricting.