Buying a Franchise in Lebanon: Scrutinising the Non-Compete Clause

You may choose a brand that suits your experience, only to discover that its contract prevents you from keeping another business or working in your field after the relationship ends. When buying a franchise, the non-compete clause deserves a review in its own right: what does it actually protect, and which opportunities does it require you to give up? Do not simply ask whether the clause exists. Examine its impact on your current businesses and career plans, then negotiate clear limits that can be understood and applied.

Understand the legal framework before assessing the restriction

Lebanon has no single franchise-specific law, nor a general franchise-specific framework requiring a pre-contractual disclosure document or registration of the agreement as a franchise contract. The relationship is governed primarily by the Code of Obligations and Contracts and the Commercial Code, alongside other rules relevant to the activity and obligation concerned. Do not therefore assume that a standard statutory non-compete period applies to all franchise agreements.

Depending on the substance and terms of the relationship, Legislative Decree No. 34 of 1967, as amended, concerning commercial representation may also be relevant. Calling a document a ‘franchise agreement’ does not, on its own, determine its legal classification or the protections available. Ask a Lebanese lawyer to assess this and review the restriction under the applicable law and relevant mandatory rules.

Distinguish between a written clause and an enforceable one. Your signature does not remove the need to examine its legality and limits; equally, you should not disregard it simply because you consider it too broad. Ask your lawyer specifically about the implications of its duration, geographical reach and scope of restricted activities, and the remedies sought for a breach. This is an assessment of your circumstances, not an advance guarantee that a court will uphold or reject the restriction.

Define the prohibited activity and who is covered

Start with the definition of ‘competing activity’. Wording such as ‘any directly or indirectly similar activity’ could trigger a dispute over a business that does not even sell the same products. Ask for the definition to be tied to the goods or services concerned, rather than to any activity the brand might enter in future.

Test the wording against examples from your own circumstances. Do you own a café and intend to buy a dessert franchise? Do you hold a small stake in a company that runs a shop? Do you advise a business serving different customers? Submit these examples in writing and ask for the answers to be incorporated into the contract or an agreed addendum, rather than relying on verbal reassurance.

Then review the people and activities covered:

• Is only the franchisee bound, or must partners and directors sign in their personal capacity?
• Does the restriction cover ownership, management, employment, consultancy and financing?
• Are passive financial investments that give you no management role excluded?
• Does the contract attempt to make you responsible for an independent business run by a family member?

Do not assume that naming someone who has not signed automatically binds them. However, check whether you are undertaking to prevent their actions or accept liability for them. List your existing businesses in a schedule of exceptions, specifying their names, activities and the limits within which they may continue, including what happens if they later expand.

Separate the operating period from the post-termination period

The franchisor may require you not to run a competing business during the franchise term to protect your commitment to the brand. But a restriction that continues after the agreement ends raises a different question: how will you use your experience and earn a living once your right to use the brand has ceased? Negotiate each period separately, rather than accepting a single vague provision covering both.

For the contract term, define the territory and prohibited activities, the process for seeking approval for a new opportunity, and the contractual deadline for a response. For the period after the agreement ends, ask for precise start and end dates and a clearly defined territory. Does the period begin when the agreement ends, when the outlet closes, or when some other event occurs that could be delayed? Avoid a starting point that cannot be verified.

Also ask whether the restriction applies in the same way when the term expires, when the franchisor terminates the agreement, or when the franchisor breaches its obligations. Different treatment can be negotiated depending on why the agreement ends, but this is not an automatic exemption that the franchisee can claim unilaterally.

Pay particular attention to online sales. Does the clause merely prohibit running a business from within the territory, or does it cover any sale reaching a customer there? Ask for wording that prevents a local restriction from becoming geographically unlimited simply because online orders can reach the area.

Calculate the cost of the restriction and secure exceptions before signing

The cost of a non-compete clause is not a fee paid to the franchisor. It may instead be a business or expansion opportunity you must forgo. List your existing businesses and realistic plans, identifying which would be prohibited, which would require approval and which would need a written exception. Use this list when comparing brands, alongside franchise fees and the support you expect to receive.

Also review any agreed damages, any provision for seeking an order to stop the activity, and the procedure for addressing an alleged breach. Do not assume that the stated amount is automatically payable in every case, or that it caps your liability. Ask for a legal explanation of the effect of the wording as a whole. If the franchisor grants an exception, check that it comes from an authorised party and that the addendum takes precedence if it conflicts with the general wording.

Practical takeaway: Before signing, ask for a clear map of the non-compete restriction: the activities, people, territory, duration, exceptions and remedies for breach. Do not buy the right to operate a brand before understanding which professional and commercial rights the contract will require you to restrict.