Franchising in Japan: Checking the Priority of Agreements, Schedules and Operating Rules Before You Sign

When considering a franchise, are you making your decision based solely on the main agreement? A phrase such as ‘details are set out in the schedule’ or ‘the franchisee must comply with the franchisor’s operating rules’ may point to documents containing costs and day-to-day obligations. To start your business within a franchise network with confidence, gather all the documents that make up the contract before signing, and check how any inconsistencies between them will be handled.

1. Identify every document referred to in the agreement

Your first task is not just to read the agreement carefully, but to take stock of the documents. Highlight references to ‘schedules’, ‘annexes’, ‘operating rules’, ‘manuals’, ‘fee schedules’ and ‘specified standards’, and list the documents they refer to. Check whether the schedules themselves refer to further documents.

Ask the franchisor to clarify the following:

• The official title of each document forming part of the contract
• Each document’s version number, date of preparation or effective date
• Which documents you will receive before signing, and which you may only inspect
• Which documents will be provided after you join, and a summary of their contents
• Which materials you are contractually required to follow, and which are for reference only

For example, the obligation to use a designated system may appear in the agreement, its charges in a fee schedule, and the specifications for the required equipment in an operating manual. Checking just one of these will not reveal the actual burden involved.

Include columns marked ‘received’, ‘viewed only’ and ‘not yet checked’ in your list. This will help you avoid treating a document as checked when you have only heard an explanation of it. If document titles do not match, ask the franchisor whether they refer to the same document or to separate rules.

2. Distinguish statutory disclosure documents from the documents forming the contract

Japan does not have a single, comprehensive law governing all franchise agreements uniformly. However, Article 11 of the Small and Medium-sized Retail Business Promotion Act requires franchisors whose businesses fall within the Act’s category of ‘specified chain businesses’ to provide prospective franchisees with written information on prescribed matters, and explain it, before entering into a contract.

Whether a business falls within this category depends not on its name, but on criteria such as the ongoing supply of goods and management guidance, the use of trade marks, and payments collected when a franchisee joins. The obligations under this article do not apply to every franchise.

The Japan Fair Trade Commission’s guidelines on franchise systems under the Antimonopoly Act are also relevant to franchises across a range of sectors. Franchisors and franchisees are independent businesses, and their trading relationship is subject to the Antimonopoly Act. General rules under the Civil Code also apply to matters such as contract formation and interpretation.

The key point is that receiving a statutory disclosure document is not the same as checking all your contractual obligations. Disclosure documents serve to provide information before signing; receiving one does not automatically mean it takes precedence over the agreement or its schedules.

If the disclosure document gives an overview of costs and an attached fee schedule provides the details, compare the two. If amounts, the services covered or payment terms differ, ask which is correct and check that the documents you are due to sign reflect a consistent position.

3. Check what forms part of the contract and which documents take precedence

Once you have gathered the documents, look for clauses dealing with the ‘effect of schedules’, ‘order of precedence’ or ‘entire agreement’. Even without these headings, wording such as ‘these rules form part of this agreement’ can provide a useful clue.

Work through the following three stages.

First, establish whether the document is incorporated into the contract. Distinguish between materials supplied merely for information and those you are contractually required to follow. The fact that you received a document does not necessarily determine its legal status.

Second, check which document takes precedence if the contents conflict. Establish the relationship between the main agreement, any separate agreements, schedules and operating rules. Do not assume that separately agreed terms must always prevail, or that a later-dated document automatically takes precedence. This requires consideration of the contract’s wording and the circumstances in which the terms were agreed.

Third, look for ambiguities that an order of precedence alone cannot resolve. For example, if the agreement says you must ‘bear the system costs’, but the fee schedule lists only a monthly charge, it remains unclear whether this includes initial setup costs or equipment costs. This is a question about the scope of your obligations, not simply which document prevails.

Ask the franchisor: ‘Under this clause, exactly what must be done, by when, and at whose expense?’ This can help move the discussion beyond general explanations. If uncertainty remains, gather the full set of contractual materials and consult a lawyer.

4. Do not sign while referenced rules remain unavailable

A franchisor may provide detailed manuals only after you join in order to protect its know-how. However, if the agreement requires you to comply with documents you have not checked, you need to establish whether they contain obligations that could affect your investment decision.

If providing the full text is not possible, discuss options such as advance inspection under confidentiality arrangements, access to sections covering costs and equipment requirements, or a list of obligations. This does not mean prospective franchisees have a right to demand copies of every internal document. These are practical ways to check the terms needed for your decision before signing.

Immediately before signing, check at least the following:

• References in the agreement match the titles of the documents you hold
• No important terms in the schedules are left blank or marked ‘to be determined separately’
• Conflicts between documents concerning costs and obligations have been resolved
• You can retain the final agreement and accompanying documents in a form that allows you to consult them after signing

If documents are available through a members’ portal, discuss how to record the contents as they stood when you checked them, and how to refer back to them later. Follow any restrictions on saving or copying materials.

The practical principle is to base your decision on the complete set of contractual documents, not just the main agreement. Summarise document titles, applicable versions, obligations and the order of precedence in a single checklist, and proceed to signing only once no important terms remain unchecked.