Buying a Franchise in Lebanon: Clarifying the Non-Compete Clause Before You Sign

You may choose a suitable brand, only to discover that its contract prevents you from investing in another business that overlaps with it only partly. A non-compete clause is not simply wording designed to protect the brand’s secrets: it may also affect your livelihood and business partnerships after the relationship ends. A balanced franchise relationship starts with understanding what the clause actually protects and the restrictions it places on you before you commit.

1. Understand the legal framework: do not assume every restriction is valid

Lebanon has neither a comprehensive law specifically governing franchise agreements nor a statutory disclosure regime specifically for franchising. The relationship is governed primarily by the Code of Obligations and Contracts and general commercial rules, with intellectual property, consumer protection and competition laws applying according to the issue involved. Do not therefore assume that a non-compete clause is valid in every detail simply because it appears in a printed contract, or automatically invalid because it restricts your activities.

Assessing the clause requires a Lebanese lawyer to review its wording, the interest it seeks to protect, its duration, scope and effects. The legal classification of the relationship may also raise the question of whether Legislative Decree No. 34 of 1967 on commercial representation applies. Beirut Court of Appeal decision No. 1106/2009 distinguished a franchise agreement from commercial representation, but this does not mean that the classification of every agreement is settled in advance. Do not rely on the contract’s title alone to determine your rights.

The Lebanese Franchise Association has a code of ethics that includes disclosure obligations for the members concerned. However, it is not a generally applicable law giving every buyer the same protection. Ask for written confirmation of whether it applies, without treating it as a substitute for reviewing the clause.

2. Turn ‘competing activity’ into a clear definition

Start by identifying the prohibited activity. Wording such as ‘any business similar or related to the brand’s activities’ may cover a wider range of businesses than you expect. If the brand specialises in a particular food product, does the clause prevent you from running a similar specialist business, or from owning any restaurant? Does it also cover online sales, consultancy or employment elsewhere?

Ask for a definition that links competition to the core products or services and the customer base, rather than using broad wording. Then test that definition against real situations:

• A business you already own and want to retain.
• A small investment stake that gives you no management role or control.
• Consultancy work that does not use the brand’s secrets.
• A different business whose products partly overlap with the brand’s range.

List exempt existing activities in a schedule, including the entities’ names and the nature of their businesses. Do not settle for a message saying that the franchisor ‘knows about your other businesses’. Knowledge is not the same as clear contractual consent, and the management team that reassured you may change.

3. Separate restrictions during the contract from those after it, and define the territory

Preventing you from running a competing business during the relationship may serve an understandable purpose, such as avoiding the transfer of operational know-how or conflicts of interest. Continuing the restriction after the contract ends is a different matter, however, and deserves separate negotiation rather than an automatic extension of the same clause.

Ask for the start and end of the restriction period to be defined for each situation: expiry of the original term, early termination, or operations ceasing while closure procedures remain under way. Watch for wording that restarts the period after every alleged breach, or ties its start to a step controlled solely by the franchisor. No single duration can be described as automatically permissible for every franchise agreement in Lebanon.

As for geographical scope, ask why the restriction covers the whole of Lebanon if your business operates only in a limited area. If it covers online sales, how is competition defined: by the shop’s location, the customers’ location or the delivery area? Ask for workable boundaries, rather than wording such as ‘wherever the brand operates now or in the future’, which allows the restriction to expand after signing.

4. Review who is covered and the consequences of a breach

The contract may be signed in a company’s name, while the restriction extends to shareholders, directors and affiliated companies, or requires separate personal signatures. Make a list of every person and entity covered by the wording, and distinguish between those who actually have access to confidential know-how and those who merely finance the business.

Be wary of promising to ensure that your relatives or business partners do not compete, particularly where you have no control over their decisions. Ask your lawyer about the effect of signing personally and the limits of the company’s responsibility for others’ actions. Also review any requirement to obtain the franchisor’s consent for a new investment: ask for clear approval criteria and a deadline for a response, rather than open-ended powers to hold up your projects.

Read the remedies and penalties alongside the restriction itself. Can the franchisor claim a contractual sum in addition to damages? Does any breach justify immediate termination? Ask which breaches can be remedied and what notice procedure applies. Do not assume that the stated sum will automatically become payable, or that a court will necessarily set it aside.

5. Negotiate targeted protection rather than a blanket ban

Ask the franchisor what, specifically, it fears losing: secret recipes, operating procedures or customer information? Precise confidentiality provisions and restrictions on the use of protected know-how may achieve part of the objective without broadly prohibiting all professional activity. These alternatives must themselves remain clearly defined and subject to legal review.

Prepare a negotiation sheet covering the definition of a competitor, duration, territory, people covered, exceptions, and remedies and penalties. Link each proposed amendment to a practical situation, then ensure it is included in the final agreement and its schedules.

The practical takeaway: Before buying a franchise in Lebanon, test the non-compete clause against your current business and your next planned venture. If you cannot establish what you may do, when and where, the clause needs written clarification and legal review before you sign.