Buying a Franchise in Lebanon: Is Your Agreement a Franchise or a Distribution Deal?

You may be offered an agreement labelled a ‘franchise’ whose actual obligations centre on buying and reselling products. Equally, a distribution agreement may allow you to use a trade mark without providing a complete business system. Before entering Lebanon’s franchise market, examine the nature of the relationship you are buying into: its legal classification affects both the rights you can claim and what is worth paying for.

1. Examine the substance of the deal, not the title of the agreement

Start with a simple question: what will you receive beyond the goods and the name? A franchise should provide a practical business system, including know-how transferred by the franchisor and cooperation between the parties. Permission to sell products bearing a well-known brand does not, on its own, establish that you are buying a franchise.

Ask the other party for a written description of the relationship, then compare it with the draft agreement and what you will actually receive. Structure your comparison around four questions:

• What are you entitled to do? Operate a complete business concept, resell specified products, or act as an intermediary in transactions on behalf of another party?
• In whose name and on whose account are sales made? Do you buy and sell on your own account, or receive commission on transactions carried out by the other party?
• What know-how will be transferred? Are there documented operating procedures and defined working methods, or merely a product catalogue and display instructions?
• How will cooperation continue? Are there mutual obligations to support the ongoing implementation of the concept, or does the other party’s responsibility end when the goods are delivered?

These questions are not, by themselves, a definitive legal test, but they reveal gaps between the sales pitch and the written commitments. Exclusivity alone does not make a relationship a franchise, nor does a logo above the shopfront.

2. Understand Lebanon’s legal framework and the limits of protection

Lebanon has neither a comprehensive franchise-specific law nor a statutory disclosure regime specifically for franchising. The relationship is governed primarily by the Code of Obligations and Contracts and the Commercial Code, alongside other relevant rules depending on the activity and issue involved. Do not assume that being described as a ‘franchisee’ automatically gives you a package of rights under a dedicated law.

By contrast, Legislative Decree No. 34 of 5 August 1967 regulates commercial representation and covers certain exclusive distribution arrangements. It is not, however, a franchise law, and you should not assume that it applies to every agreement combining a trade mark with product sales.

An important judgment is Beirut Court of Appeal Decision No. 1106/2009, dated 30 July 2009, which distinguished franchising by reference to the right to use a trade mark or trade name, the transfer of know-how, and cooperation between the parties. This distinction supports treating a genuine franchise agreement separately from the commercial representation regime. It does not, however, remove the need to examine the substance of each relationship, particularly where distribution and franchise elements overlap.

The Lebanese Franchise Association also has a code of ethics addressing pre-contractual information and the substance of the relationship. This code is not a generally applicable disclosure law, nor does it determine the legal classification of your agreement on its own. Check the extent to which the other party is bound by it, and do not treat it as a substitute for reviewing the law and the agreement.

3. Prepare a file that allows the relationship to be classified accurately

Before paying an initial fee, compile a concise file that a Lebanese lawyer can review as a single transaction rather than a collection of separate documents. Include the draft agreement, the commercial proposal, sample purchase orders and invoices, a description of the know-how, and a list of the documents you will receive. Confidential material can be made available under suitable confidentiality arrangements, rather than the other party simply refusing to provide any evidence that it exists.

Add a simple diagram of the sales process: who orders the product? Who owns it before it is sold? Who invoices the customer? Who bears the risk of returns and non-payment? These details help establish each party’s actual role, even if correspondence uses different descriptions.

Request a written legal opinion addressing specific questions: is the relationship a franchise, distribution or commercial representation arrangement, or a combination? Do any clauses conflict with that classification? Does the classification trigger registration requirements or mandatory legal rules? Do not assume that the company’s standard commercial registration answers all these questions.

Warning signs include the other party refusing to clarify the rights being granted, or describing the relationship as a franchise when collecting fees but as an ordinary sale when discussing its obligations. That inconsistency needs to be resolved before signing, not left to a later verbal promise.

4. Link the price to what you actually receive

After the legal review, revisit the fee schedule. If there is an initial fee separate from the price of the products, ask for a clear explanation of what it covers: a licence to operate a business concept, the transfer of specified know-how, or defined services. A charge labelled a ‘franchise fee’ is not evidence of a genuine franchise.

Ensure that the agreement describes the rights and obligations consistently, and remove contradictions between it and any accompanying sales agreements. If the deal combines franchising and distribution, ask for clarification of how the two arrangements relate to each other and what happens to one if the other ends. Splitting the documentation or changing document titles does not necessarily change the relationship’s legal classification.

The practical takeaway: before buying into a name, establish the nature of the rights you are acquiring. Gather the transaction documents, obtain an independent legal assessment of the relationship, and link every fee to something clearly defined in return. Do not base your decision on the ‘franchise’ label alone.