Buying a Franchise in Ireland: Checking Royalty Fees

A royalty percentage can look straightforward until you discover what it applies to. For buyers joining Ireland’s franchise community, the definition of turnover, minimum payments and collection rules can matter as much as the headline rate. Before signing, establish exactly what you will owe, when payment falls due and whether the franchisor can change the calculation.

1. Establish which rules govern the fee

This guide concerns the Republic of Ireland. Ireland has no franchise-specific legislation, compulsory statutory franchise disclosure document or requirement to register franchise agreements. Do not assume that a prescribed disclosure pack will explain every royalty obligation before you commit.

Instead, general contract law governs the agreed payment obligations. Irish and EU competition law, including the Competition Act 2002 as amended, also applies. Intellectual property law governs rights to use the brand, while consumer protection law applies to dealings with customers. Buying a franchise for business purposes does not ordinarily give you the protections available to a consumer purchase.

The Irish Franchise Association’s Code of Ethical Conduct applies to its members and is based on the European Code of Ethics for Franchising. It is a membership standard, not franchise legislation or a substitute for reviewing the contract.

Request the draft agreement, fee schedules and any documents incorporated by reference. Ask an independent solicitor to identify every provision affecting royalties, including clauses allowing changes through an operating manual. A recruitment brochure is not enough to establish your legal obligations.

2. Define the turnover being charged

Royalties may be described as management services fees or continuing fees. They can be calculated on turnover, charged as a fixed sum or structured through a combination of methods. The label alone tells you little.

For a turnover-based fee, ask your accountant to examine the contractual definition of sales or gross revenue. Resolve these points in writing:

• VAT: Is it expressly excluded from the calculation?
• Refunds and cancellations: When can they be deducted, including refunds issued in a later reporting period?
• Discounts: Is the fee based on the amount the customer actually pays or another value?
• Delivery and booking platforms: Does the calculation use the customer’s full payment or the amount you receive after commission?
• Credit sales: Is the royalty due when you invoice, even if the customer has not paid?
• Vouchers and advance payments: Is revenue counted when money is received or when the service is delivered, and how is double counting avoided?

Request worked examples using transactions your proposed business will actually handle. Have the franchisor confirm that these examples reflect the draft contract. Where wording is unclear, seek an amendment rather than relying solely on an explanatory email.

3. Identify minimums and adjustment powers

A low advertised rate may sit alongside a minimum monthly royalty. That minimum can remain payable during a slow opening period or a temporary closure, depending on the agreement.

Check when charging begins: signing, training, opening or another specified date. Establish whether an opening concession ends automatically and whether deferred fees become payable later. A deferral is not the same as a waiver.

Then examine how the charge can increase. Is there a fixed adjustment, an inflation-linked formula, a stepped rate or a discretion to revise fees? For an index-linked increase, identify the index, review date, calculation method and any floor or cap.

Ask whether sales thresholds apply to all turnover or only to the portion above each threshold. If a reduced rate is promised as the business grows, ensure that the eligibility conditions appear in the binding documents.

4. Check collection, reporting and audit terms

Even an affordable fee can create pressure if it leaves your account before customer receipts arrive. Map the reporting deadline, invoice date and collection date against your expected cash receipts.

Clarify who prepares the calculation and how you challenge an error. If the franchisor collects royalties automatically from a payment platform, ask how adjustments are processed and what records you can access.

Review audit rights too. The contract may require you to retain sales records, permit inspections and pay audit costs if under-reporting is found. Understand any threshold triggering those costs, interest on arrears and the time allowed to correct a reporting mistake.

Do not assume you can withhold royalties during a dispute about the franchisor’s performance. Ask your solicitor about the contractual dispute process and the consequences of non-payment.

5. Test the formula before committing

Ask your accountant to prepare a royalty worksheet using the contractual wording, not the sales presentation. Include a quiet month, a refund-heavy month and a month with substantial platform sales. Show both the royalty expense and its payment date.

Compare the results with anonymised examples supplied by the franchisor. Ask existing franchisees whether statements are understandable and corrections are handled promptly, while recognising that their contracts may differ from yours.

Practical takeaway: Before signing, obtain a clear royalty formula, test it against realistic transactions and have any agreed changes recorded in the contract. Judge the obligation by the cash it requires, not just the advertised percentage.