Buying a Franchise in Lebanon: How to Set Clear Royalty and Payment Currency Terms

When buying a franchise in Lebanon, comparing the royalty rates of two brands is not enough. A lower rate may cost more if it applies to a broad definition of sales, carries a fixed minimum payment or falls due before you receive the money. To enter franchising with a clear financial picture, focus on one specific question: how does the royalty clause in the contract translate into money actually leaving your business account each month?

Start with the definition of sales, not the royalty rate

A royalty is the recurring payment a franchisee makes under the contract. It may be a percentage of sales, a fixed amount or a combination of the two. Do not assume that ‘sales’ means net receipts or profits. The contract must define the term precisely, and that definition must match the way reports are generated by your point-of-sale system.

Ask for the following points to be addressed in writing:

• Value added tax (VAT): Is it excluded from the royalty calculation where applicable?
• Discounts and promotions: Is the royalty calculated on the original price or the amount the customer pays? Who bears the cost of a compulsory promotion?
• Cancellations and returns: When is a refund deducted, and how is a previous month’s calculation corrected?
• Delivery platforms: Is the calculation based on the customer’s order value before the platform’s commission, or on the net amount transferred? How is the delivery charge treated?
• Vouchers and prepaid cards: Are they counted when sold or when redeemed, and how is double counting prevented?

Ask the franchisor to apply the proposed wording to a sample sales report covering these situations. If your accountant reaches a different result, this is not just an accounting issue: it points to contractual ambiguity that needs resolving before you sign. Include the agreed example in a contract schedule explaining the calculation method, rather than leaving it in separate correspondence whose standing either party might dispute.

Separate the calculation currency from the payment currency

In Lebanon, this clause warrants a review of its own. Your business may record sales in one currency while the franchisor calculates royalties in another and requires payment into an overseas account. Three things therefore need to be distinguished: the currency used to record sales, the currency used to calculate the amount owed and the currency used to settle it.

If currency conversion is required, specify the exchange-rate source and the date used in the contract. Will it be the date of sale, month-end, the invoice date or the payment date? Avoid phrases such as ‘the applicable rate’ without a clearly named reference source and a fallback mechanism if that source ceases to operate or cannot be used. Do not leave the choice of rate solely to either party.

Also specify who is responsible for transfer fees and intermediary bank charges, and when payment is considered complete: when the transfer is initiated or when the funds arrive? Ask your bank to check the proposed payment route and its requirements in practice. Do not build your plan on the assumption that every transfer will always be possible.

Discuss a grace period for documented banking delays and a written alternative procedure for making lawful payment. An inability to transfer funds does not automatically release you from your obligation, and agreeing on a currency does not, by itself, resolve every issue relating to payment. Have a Lebanese lawyer review the wording before accepting it.

Test royalties alongside other fees and the timing of receipts

Prepare a monthly schedule showing royalties alongside marketing contributions, software fees and any other compulsory recurring charges. The aim is not simply to add up percentages, but to understand the basis for each charge, when it falls due and whether it can change. Ask for contractual provisions preventing new fees or increases without clear contractual controls and an agreed period of advance notice.

Pay particular attention to any guaranteed minimum royalty. If it remains payable when sales are weak, the royalty effectively becomes a partly fixed cost. Ask whether it starts at signing or when the business actually opens, and whether specific arrangements apply during fit-out or a closure ordered by the authorities. These are matters for negotiation, not legal exemptions you should assume exist.

Test three scenarios without relying solely on the franchisor’s forecasts: normal sales, weaker sales and delayed receipts from platforms or customers. For each scenario, calculate the amount due to the franchisor and the cash available on the payment date. Your business may show an accounting profit yet still need additional cash because royalties fall due before receipts arrive.

Ask a Lebanese accountant to review any taxes that may apply to the payments, taking account of their nature, the recipient’s identity and tax residence, and any applicable tax treaty. Specifically, ask whether the contract requires you to pay an additional amount so that the franchisor receives its full fee after any legally required withholding. This provision can increase the effective cost.

Secure the right to check calculations within Lebanon’s legal framework

Lebanon does not have a comprehensive law specifically governing franchise agreements. The relationship is governed primarily by the Code of Obligations and Contracts and the Commercial Code, with tax and other rules applying according to the nature of the obligation. Do not therefore assume that there is a specific statutory cap on royalties or a compulsory standard formula for calculating them.

Nor should Legislative Decree No. 34 of 1967 on commercial representation be assumed to apply automatically to every franchise. Beirut Court of Appeal Decision No. 1106/2009 distinguished franchising from commercial representation. The legal classification of the agreement and its substance nevertheless require local legal review.

Negotiate a detailed royalty statement, the right to raise objections within a reasonable period, and a process for correcting errors and issuing adjustments. If the franchisor is given the right to audit your records, define the scope of that right, the confidentiality requirements and who bears the cost. Do not accept automatic liability for all audit expenses without clear conditions.

Practical takeaway: Before signing, request a contract schedule setting out the definition of sales, the royalty formula, the exchange-rate rule, payment dates and the procedure for raising objections. If you cannot reproduce the invoice calculation yourself, the royalty clause is not yet clear enough.