Franchising in Greece: taking a deposit before the contract

When turning an existing business into a franchise network, a prospective franchisee may ask to ‘reserve’ a territory before signing the final agreement. A deposit may seem a simple solution, but it creates commitments that need careful planning. In a well-run franchise network, no payment should be collected without a clear purpose, a specific benefit in return and understandable refund terms.

1. Clarify exactly what the prospective franchisee is paying for

The word ‘deposit’ is not enough to explain an agreement. The payment might cover a temporary territory reservation, specific preparatory services or part of the future initial franchise fee. Each requires a different description and different treatment if the relationship ultimately goes no further.

Before asking for money, answer these questions in writing:

• What specific benefit or service will the prospective franchisee receive?
• When does that benefit or service begin and end?
• Will the payment be credited against a future charge, and if so, which one?
• What happens if no suitable premises are found or the application is rejected?
• Who approves any additional costs?

For example, temporarily agreeing not to negotiate with other applicants for a defined territory is not the same as granting definitive exclusive rights. If you are offering only the former, do not present it as a guaranteed right to open an outlet.

Also avoid using the Greek terms for ‘advance payment’ (prokatavoli), ‘security deposit’ (engyisi) and ‘earnest money’ (arravonas) interchangeably. They are not legally identical. A lawyer should review both the terminology and the substance of the agreement before they are used in forms or sales communications.

2. Apply the Greek pre-contractual framework

Greece has no specific law governing franchising as a whole, nor a dedicated statutory regime requiring pre-contractual franchise disclosure. There is also no requirement for franchisors or franchisees to register in a dedicated franchise register. This does not remove their usual corporate, tax or other obligations.

Negotiations are subject, in particular, to Articles 197–198 of the Greek Civil Code: the parties must act in good faith and in accordance with accepted commercial practice. Culpably causing loss may give rise to liability even if the final agreement is never concluded. The preliminary agreement is also subject to the Civil Code’s general rules on contracts.

The European Code of Ethics for Franchising provides for full and accurate written disclosure a reasonable time before signing. This is a self-regulatory framework, not a generally applicable Greek law. Whether it is binding depends, among other things, on association membership or its incorporation into a contract.

In practice, give the prospective franchisee a meaningful opportunity to carry out due diligence before making a financial commitment. Do not present an internal deadline as a legal requirement, or promise an automatic consumer right of withdrawal in a business agreement. Exit terms need to be considered specifically.

3. Draw up a standalone reservation agreement

Do not leave the agreement recorded only in a payment receipt or a vague exchange of messages. Use a short, standalone document that distinguishes the temporary commitment from the final franchise agreement.

Identify the contracting parties, the amount, the payment method and the duration. If a territory is being reserved, define it sufficiently precisely and explain exactly what you are putting on hold: new discussions, acceptance of other applications or signing an agreement with a third party. Also specify how the reservation ends and whether an extension requires a new written agreement.

State which approvals remain outstanding. These might include assessment of the applicant, checks on funding or approval of specific premises. Payment must not be presented as final approval while these conditions remain unresolved.

Make clear, too, that the reservation does not automatically permit use of the trade mark, a public announcement of membership of the network or the operation of an outlet. If you intend to grant any limited permission, this needs a separate, clear provision. Check with your accountant which supporting document should be issued and how the particular transaction should be treated for tax purposes.

4. Agree the exit terms before collecting payment

The real test of the process is what happens when the relationship ends. Address separately rejection by the franchisor, withdrawal by the prospective franchisee, failure to fulfil an agreed condition and expiry of the reservation without a final decision.

For each scenario, specify whether the full amount will be refunded, whether any money may be retained and when the refund must be completed. If costs may be deducted, describe in advance which work they cover, how they are approved and what evidence is required to substantiate them. A general ‘non-refundable’ label is no substitute for reviewing the legality of the terms and the actual circumstances.

Keep a consolidated record of the agreement, disclosures, payment and communications. Make sure everyone speaking to prospective franchisees uses the same terms and does not verbally promise different refund arrangements.

Practical takeaway: before collecting payment, you should be able to explain in one paragraph what you are committing to, for how long and what you will refund if the relationship does not proceed. If you cannot, the process still needs work.