Buying a Franchise in Lebanon: Reviewing Supplier Purchasing Terms

The fees for buying a franchise may seem clear, while ongoing financial commitments lie hidden in a small clause requiring you to buy from the franchisor or its chosen suppliers. In franchising, standardising materials and products helps protect brand quality, but it does not remove the need to scrutinise supply terms. Before buying a franchise in Lebanon, ask: what must I buy, at what price, and who bears the loss if goods fail to arrive or cannot be sold?

1. Define the scope of mandatory purchasing and the legal framework

Start with a written list distinguishing products that must be bought exclusively from a specified source from materials that simply need to meet the brand’s specifications. The list may include core ingredients, packaging, workwear, spare parts or cleaning products. Do not accept a broad phrase such as ‘all operating supplies’ without a schedule defining what it covers.

Ask for a practical explanation of exclusivity in each category: does it protect a proprietary recipe, ensure product safety or merely impose a purchasing channel? The aim is not to abandon brand standards, but to establish where a local supplier meeting those standards could be approved and where a single source is genuinely necessary.

Lebanon has no comprehensive law specifically governing franchise agreements, nor a general franchise-specific regime requiring a pre-sale disclosure document or registration of the agreement as a franchise. Depending on its subject matter, the relationship is governed by the Code of Obligations and Contracts, the Commercial Code and other relevant general rules, including intellectual property protection. Consumer Protection Law No. 659/2005 applies within its scope, but it does not turn every supply dispute between businesses into a consumer claim.

Nor should you assume that exclusive purchasing obligations automatically give you the protections afforded to commercial representatives under Legislative Decree No. 34/1967. The legal classification of the relationship and whether its provisions apply require legal review. Make your supply rights explicit in the contract rather than relying on assumed franchise-specific safeguards.

2. Calculate the landed cost, not just the listed price

Request a sample purchase order, an invoice and the supplier’s terms of sale, rather than just a price list. You need to know whether the price includes transport, insurance, customs clearance and storage, who handles imports where necessary, and when the risk of damage or loss passes to you. Review these points with an accountant and an appropriate specialist adviser, depending on the goods involved.

Create a table for each mandatory item covering:

• The purchase price and all additional costs incurred before it reaches the outlet.
• The minimum order quantity and pack or batch size.
• Delivery lead times and payment or advance-payment terms.
• The minimum remaining shelf life required on receipt.
• Storage and inspection costs, and expected wastage.

Compare alternatives by specification and total cost, not price alone. A lower-priced product may cost more overall if it requires a large order or expensive storage. Also ask whether the franchisor receives commissions or rebates linked to franchisees’ purchases. This is a request for transparency during negotiations, not an assumption that you have a specific, unrestricted legal right to inspect its accounts.

The agreement should also specify how prices may be adjusted, who must notify you and how much notice must be given. Negotiate protection against retrospective price changes to accepted orders, along with a process for reviewing alternatives if a mandatory item becomes commercially unaffordable.

3. Set quantity and stock terms before committing to payment

A reasonable unit price is not enough if the required quantity exceeds what the outlet can sell. Distinguish purchasing forecasts used for planning from binding orders, and establish when an order becomes final, who is authorised to approve it and whether it can be amended before dispatch.

Pay particular attention to opening stock and seasonal products. Ask who determines initial quantities, whether deliveries can be staggered, and what happens to printed materials or products the franchisor stops using. Negotiate stock replacement or buy-back arrangements for agreed circumstances, specifying the price, required condition of the goods and transport costs. These arrangements need to be written into the contract; they are not automatic rights.

Test the plan against a slower-than-expected sales scenario. Calculate how much cash will remain tied up in stock, the storage space required and the impact of the next delivery arriving before the previous stock has sold. If the supplier offers a payment period, check whether it starts on dispatch or receipt: the difference can directly affect the cash available to run the business.

4. Agree alternatives for supply disruptions and liability for defects

An approved supplier is not automatically bound to honour every promise the franchisor makes to you. If the supplier is an independent party, review its contract or the terms of sale you will be accepting and check that they align with the franchise agreement. A promise from the franchisor to replace goods is not enough if the supplier’s terms exclude replacement.

Set out a clear procedure for shortages, damage and goods that do not meet specifications: how to report them, the documents required, the inspection deadline, who decides whether to replace the goods or refund the price, and who pays return costs. Distinguish defects apparent on delivery from those that can only be discovered later, and seek legal review of any broad exclusion of liability.

Also negotiate a process for approving an alternative supplier during a disruption, including written specifications, a documented request, a response deadline and a designated party responsible for inspection. Do not treat the franchisor’s silence as approval unless the agreement expressly allows this, and do not use alternative sourcing as a reason to bypass safety requirements.

Practical takeaway: Before signing, bring together the mandatory purchasing list, supplier terms, cost table and alternative sourcing plan. If these documents conflict, resolve the discrepancies in writing before paying for your first stock order.