Franchising: when a partnership begins without a signature

When turning an existing business into a franchise network, it is easy to begin practical preparations before the agreement is finalised: sending equipment, granting access to systems or introducing the new partner to the public. But saying ‘we haven’t signed yet’ does not, in itself, provide a safe boundary. Responsible franchising requires a clear distinction between exploring a partnership and actually starting one.

A signature is not the only test

Greece has no specific law comprehensively regulating franchising as a distinct type of contract. Franchise agreements are usually made in writing, but there is no general requirement for the agreement as a whole to take written form. An agreement may therefore arise orally or through the parties’ conduct, provided the legal requirements are met.

This does not mean that every meeting, message or preparatory act creates a full contract. It means that the parties’ actual statements and actions, the substance of what they agreed and their intention to be bound are all examined. Specific rules governing individual acts or rights may also require separate consideration.

In particular, the general provisions of the Greek Civil Code on the formation and interpretation of contracts and good faith apply. Articles 197 and 198 of the Code address duties and potential liability during negotiations. Even without a final agreement, pre-contractual conduct can therefore have consequences. General competition and trade mark protection rules also continue to apply where relevant to the partnership.

There is no dedicated state franchise register, nor is there a statutory disclosure document or minimum disclosure period before signing. However, the absence of these procedures does not remove the general duties of good faith.

Which actions blur the boundaries?

Imagine that a business owner verbally agrees with a prospective franchisee to ‘get started’. The owner then supplies branded materials, activates access to the ordering system and announces a new outlet online. The prospective franchisee begins serving customers while the lawyers are still working on the agreement.

At this point, the issue is no longer simply an unsigned draft. Actual business activity is already taking place, which may be treated as evidence of an agreement. Meanwhile, crucial questions remain unanswered: what fees are payable, how long may the trade mark be used, and what happens if negotiations break down?

Particular care is needed with:

• Messages presenting membership of the network as confirmed rather than still under consideration.
• Instructions to incur costs, place orders or carry out work without a clear allocation of responsibility.
• Providing manuals and business tools for normal operations.
• Publicly presenting the prospective franchisee as an active franchisee.
• Accepting payments that appear to fulfil obligations under a partnership already agreed.

None of these actions should be assessed in isolation. Their combined effect and the content of communications are decisive.

Treat preparation as a separate stage

Before allowing any substantive preparatory work, agree in writing exactly what may be done at this stage. A short preparatory document, reviewed by a lawyer, can clarify which provisions bind the parties and which remain subject to negotiation. Calling a document a ‘letter of intent’ does not, on its own, make it non-binding.

Specify:

• Permitted work: for example, assessing premises or conducting a technical survey, rather than serving customers under the brand.
• Responsibility for costs: who approves each expense, who pays and what happens if no final agreement is reached.
• Limits on access: which files and systems are made available, for what purpose and when access is withdrawn.
• External communications: who approves announcements, signage and introductions to suppliers.
• The end of the preparatory stage: how materials are returned and outstanding matters resolved.

If you want the main partnership to depend on signing a definitive agreement, have this condition appropriately drafted. Above all, ensure that your day-to-day conduct is consistent with it.

Introduce internal checks before operations begin

The problem often starts within the business itself. The development manager assumes that the partner has been approved, the technical team installs equipment and the communications department announces the opening. No one has checked whether operations are authorised to begin.

Appoint someone to confirm the status of each prospective franchisee. Require documented internal approval before activating systems, supplying materials for commercial use or making a public announcement. Keep a shared record of agreed actions, approvals and relevant communications.

If operational activity has already begun without a signed agreement, do not try to ‘correct’ it simply by changing dates. Record what happened and seek a legal assessment before continuing or ending the partnership.

Practical takeaway: set out the boundaries of preparation in writing and apply them in practice. Protection lies not only in the final signature, but also in what you allow to happen beforehand.