Application and Reservation Fees: Checking Refund Terms Before Joining a Franchise in Japan

Once you have found a franchise brand you would like to join, you may be asked to pay money before signing the formal agreement, perhaps to reserve an opening opportunity or begin assessing premises. However, you may not get all of it back if you do not proceed. To join a franchise network with confidence, check not only the franchise agreement but also the initial application form and payment terms.

1. Check the purpose and terms of the payment, not just its name

Labels such as ‘application fee’, ‘reservation fee’ or ‘holding deposit’ do not, by themselves, determine the legal nature of a payment or whether it is refundable. Even payments with the same name may serve different purposes: money held temporarily, payment for research carried out by the franchisor, or an advance towards the initial franchise fee.

First, ask the franchisor to confirm the following in writing:

• Who will receive the money: the franchisor, an introducer or a property agent?
• What is the payment for? Which services does it cover, such as reserving an opening opportunity, assessing your application or researching the local market?
• What does the payment secure? What area and period does it cover, and does it give you any exclusive priority rights?
• If you proceed, will it be credited towards the initial franchise fee or other charges, or will it be an additional cost?
• If you do not proceed, who will refund it, when and on what conditions?

Take particular care if you are told that the money is ‘only being held’, while the application form says it is ‘non-refundable for any reason’. Rather than relying on a representative’s verbal explanation, ask for the document you will sign to be amended or for confirmation from someone authorised to act for the franchisor.

Nor should you assume that calling a payment an ‘earnest money deposit’ means you can always withdraw simply by forfeiting it. The legal effect of money paid before joining depends on the contractual terms and the substance of the payment.

2. Understand the rules that can apply before the formal agreement

Japan does not have a single, comprehensive law governing all franchise agreements uniformly. However, Article 11 of the Act on the Promotion of Small and Medium-sized Retail Business requires franchisors whose operations qualify as a ‘specified chain business’ under the Act to provide prospective franchisees with written information and an explanation before entering into a contract. Even in retail and food service, whether the Act applies depends on the statutory criteria.

The Japan Fair Trade Commission’s guidelines on franchising under the Antimonopoly Act are also important. These cover franchising generally, not just retail and food service, and identify information that should preferably be disclosed before contracting. This includes the nature of payments collected when joining and whether, and on what terms, they are refundable. Distinguish between statutory disclosure duties and the information provision recommended by the guidelines.

General rules under Japan’s Civil Code on contract formation, breach of contract, mistake and fraud may also be relevant to application and refund disputes. Not having signed a formal franchise agreement does not necessarily mean that no contract exists. Agreeing to an application form or making a payment may create a separate contract, for example for research services.

Meanwhile, a franchise agreement entered into for business purposes is generally not a consumer contract under the Consumer Contract Act, even if it is in an individual’s name. Do not pay on the assumption that a general cooling-off right will be available. Nor does the Act on the Promotion of Small and Medium-sized Retail Business impose a blanket eight-day period during which contracts cannot be signed. An association’s voluntary standards or a franchisor’s own consideration period are separate from any statutory cancellation right.

3. Separate refund terms by the reason for not proceeding

A clause stating only ‘refundable on cancellation’ leaves unclear how far into the process a refund is available and which reasons qualify. Ask the franchisor to address the following situations separately.

Reason for not proceeding	Terms to confirm in writing
The franchisor rejects your application	Whether the payment is refunded in full or subject to deductions such as an assessment fee
No suitable premises can be found	The search deadline, consent to any extension and the refund procedure after the deadline
The property owner’s consent or necessary licences and permits cannot be obtained	Who is treated as responsible and whether a refund is available
The final terms differ from those initially explained	Whether you can withdraw because of changes to costs or opening conditions
You decide to withdraw	The withdrawal deadline, method of notification and how deductions are calculated
The franchisor stops recruiting or abandons the opening plan	The refund deadline and treatment of costs already incurred

If the franchisor will hold a reservation payment until premises are found, it is also important to set a deadline. Without one, your funds could remain tied up for a long time while you are unable to proceed. Discuss making any extension subject to written agreement by both parties rather than automatic renewal.

As well as the refundable amount, the refund clause should specify whom to contact, which documents are required, how long repayment will take and who bears the bank transfer charges. Wording such as ‘a refund may be made’ or ‘an amount the franchisor considers reasonable’ does not allow a prospective franchisee to predict the outcome.

4. Agree the scope and cap for ‘actual cost’ deductions in advance

Even if a payment is described as refundable, provisions allowing research costs or administration fees to be deducted may reduce the amount you receive. Do not take reassurance from the phrase ‘actual costs’ alone: check what it includes.

For example, payments to an external research company are different from staff costs for the franchisor’s routine sales activities. Not every cost incurred by the franchisor can automatically be passed on to a prospective franchisee. Before paying, agree which costs may be deducted, how they will be calculated, the maximum deduction and what supporting evidence will be provided.

If you are paying for research, check the deliverables too. Clarify whether you will receive a report, which premises will be assessed and by when, and whether stopping the work part-way through means you pay only for the portion completed.

During negotiations, you could propose the following arrangements:

• Work that incurs costs begins only after you approve a quotation.
• Additional work or commissioning external suppliers requires your prior consent.
• An itemised statement of deductions and amounts is provided with any refund.
• Work not yet started and costs not yet incurred are excluded from the calculation.

These are points to negotiate and make explicit in the contract, not conditions automatically imposed on every franchisor. If the payment is to be credited towards the initial franchise fee, also check the final invoice for double charging.

5. Keep a record of checks made before payment

When comparing brands, assess not only how low the application fee is, but also how clear the refund terms are and how the franchisor responds to questions. If they avoid giving satisfactory answers and focus instead on pressing you to pay, it may be best to pause the process.

Before signing, review the application form, accompanying terms, quotation and draft franchise agreement together to check for conflicting refund provisions. If a document refers to ‘terms to be provided later’, defer your decision until you have received them. For online applications, save the consent screen and applicable terms, and keep explanatory emails and payment records together.

If you withdraw, follow the specified notification method and deadline, and contact the recipient in a way that allows you to confirm receipt. If a refund is refused, ask for the contractual basis, details of work completed and an itemised breakdown of deductions. If the dispute concerns differences between the explanations and the written terms, or whether a contract was formed, take the complete set of documents to a lawyer familiar with franchise agreements. A non-refundable clause does not necessarily settle the matter, but neither is it automatically invalid.

Practical takeaway: Before your first payment, summarise four points on one page: what you are paying for, when it is refundable, what may be deducted and when it will be repaid. As a basic rule, do not rush into a payment if you cannot obtain written confirmation of these answers.