Buying a franchise: who pays if the deal falls through?

Assessing a franchise opportunity costs money even if you never sign an agreement: legal reviews, technical site inspections, travel and work to prepare the premises may all come before the final deal. If talks break down, who bears these costs? For prospective franchisees, effective protection starts with distinguishing ordinary assessment costs from losses that may result from bad-faith conduct during negotiations.

What Greek law provides

Greece has no specific law providing a comprehensive framework for franchise agreements. There is no requirement for a dedicated pre-contractual disclosure document, nor a statutory minimum period for providing information before signing or payment. There is also no dedicated franchise register or specific statutory cooling-off period for these agreements.

This does not mean negotiations take place without rules. The general provisions of the Greek Civil Code on contracts and obligations apply, alongside legislation on competition, unfair competition and intellectual property, depending on the issue.

Articles 197 and 198 of the Greek Civil Code are particularly important during negotiations. The first requires conduct consistent with good faith and accepted commercial practice. The second provides for liability for loss caused by a party’s fault during negotiations, even if no contract is concluded.

The absence of a signature therefore does not rule out every claim. However, the mere failure of negotiations is not enough to establish a right to compensation. In principle, each party remains free not to enter into the contract. The duty to act in good faith applies to both sides.

Distinguish assessment costs from potential losses

Fees paid to a lawyer to review a proposal or to an accountant to assess the investment are usually costs you incur to inform your own decision. They do not automatically become the franchisor’s responsibility simply because you ultimately fail to reach an agreement.

A different assessment may be needed where someone induces you to incur costs through misleading assurances or withholds material information they should have disclosed in the circumstances. For example, legal scrutiny is needed if you are asked to commission specialist work on the basis that approval is final, while the person directing you knows that approval has already been refused.

By contrast, the position is different if you have been clearly told that the premises are still being assessed and you go ahead with work on your own initiative. The key question is not simply ‘how much did I pay?’, but which conduct caused which specific expense.

Pre-contractual liability does not guarantee the profits you expected from the future outlet. Whether compensation is available, the extent of any loss and the causal link all require a case-specific assessment by a lawyer.

Plan expenditure in stages

Before commissioning work, draw up a simple table with four columns: expense, party responsible for payment, condition for commissioning, and consequences if the deal falls through. Include not only advisers’ fees but also surveys and studies, travel, samples, equipment reservations and any cancellation charges.

Divide preparation into successive stages:

• Initial assessment: limited spending to decide whether the opportunity is worth pursuing.
• Review of a specific proposal: legal, financial and technical assessment with an agreed scope and fee.
• Binding commitments: orders or work commissioned only once key approvals and responsibility for the risk of the deal falling through have been clarified.

Ask for a written record of who approves each stage and which conditions remain outstanding. A statement that ‘the process is moving forward’ does not necessarily amount to final approval of the investment.

If a preliminary document is signed, your lawyer should check whether it already contains binding obligations. Calling it a ‘letter of intent’ does not, by itself, determine its legal effect. Pay particular attention to who pays for studies requested by the franchisor and what happens if they ultimately reject your application or the premises.

Keep records and act promptly

Keep a chronological record of requests, approvals, quotations, invoices and proof of payment. After an important meeting, send a brief written summary of outstanding matters and ask for confirmation. Do not automatically treat the recipient’s silence as acceptance.

If an obstacle arises, pause any new commitments that cannot be reversed until the situation is clarified. Check with your suppliers which orders can be cancelled or reduced. Acting promptly protects your cash flow and helps establish the actual loss.

If the deal falls through, give your lawyer a full timeline, not just a total bill. Link each amount to the instruction, assurance or development that preceded it. Do not assume either that compensation is guaranteed or that you have no rights.

Practical takeaway: Before paying to prepare for a franchise, agree who will bear each cost if the business relationship does not go ahead. Committing funds in stages and keeping clear records are safer than relying on a future claim.