The Initial Franchise Fee in Lebanon: How Do You Set and Justify It?

When turning an established business in Lebanon into a franchise, setting the initial fee may seem like a matter of comparing other brands. But copying a commonly quoted figure does not establish whether the fee covers your work or gives the franchisee clear value in return. A better approach is to build the fee around the services and rights you actually provide, then link it to verifiable milestones. This helps establish a transparent franchise relationship and prevents disputes over money paid before the outlet starts generating revenue.

Start by defining what the franchisee is buying

The initial franchise fee is the agreed upfront payment for joining the franchise system and receiving specified rights and services. It does not necessarily cover fitting out the premises, guarantee profits or automatically replace ongoing royalties. So describe what it covers before deciding on the amount.

Create an internal table listing each item, who is responsible for delivering it and the evidence of delivery. The fee might cover the right to use the system and brand within the limits of the agreement, an outlet-specific launch plan, a package of operational know-how, initial training and defined pre-opening support. Listing these items does not mean they are automatically included: what matters is what both parties clearly agree.

Alongside this, prepare an explicit list of exclusions: rent, building works, equipment, opening stock, licensing fees, and travel or additional training expenses where applicable. Avoid describing the offer as a ‘complete opening package’ if the franchisee will bear most of these costs separately.

Test your description with a simple question: after reading it, could a prospective franchisee explain the difference between the initial fee and the cost of opening their outlet? If not, the problem lies in defining what they receive, before it lies in the price.

Build the price from costs you can substantiate

Start with the direct cost of granting a franchise for a new outlet, rather than everything you have spent on your business since its inception. Record the staff hours needed to prepare the launch, the cost of training materials, expected travel expenses and any external services specific to that franchise grant. Use actual records from your existing operation where available, and distinguish estimates from confirmed expenses.

Then separate the costs into three groups:

• System development costs: developing manuals, templates and training tools that benefit multiple outlets.
• Costs of granting an individual franchise: the additional work arising specifically from bringing a new franchisee on board.
• Costs of the ongoing relationship: recurring support and services that need funding after opening.

You can allocate a reasonable share of system development costs to future franchise grants, but do not base your calculations on optimistic, untested expansion assumptions. Also test scenarios involving fewer franchise grants, a delayed opening and another outlet needing additional training hours.

Next, set the margin the business aims to earn on the rights and services provided. You do not need to disclose all your internal calculations to a prospective franchisee, but you should be able to explain the price without claiming it reflects direct costs alone. Nor should you use the initial fee to conceal a persistent shortfall in support funding: a franchisor may spend the upfront income and then be unable to fulfil its later obligations.

Turn the fee into a clear contractual obligation

Lebanon has no comprehensive franchise-specific law governing franchise agreements, nor a dedicated mandatory disclosure regime of the kind found in some countries. The relationship is governed by general legal provisions, particularly the Code of Obligations and Contracts. Article 166 recognises freedom to arrange contractual relationships within the limits of public policy, morality and mandatory legal provisions. The absence of franchise-specific legislation does not diminish the importance of good faith and accurate information before signing.

Relevant commercial and tax rules must also be observed, while trade mark protection is governed by Resolution No. 2385 of 1924, as amended. Paying the initial franchise fee does not transfer ownership of the trade mark to the franchisee; the agreement must define the right to use it and its limits. Determining the legal classification of the relationship may also require examining whether commercial representation rules apply, based on its substance rather than its title alone.

Within this framework, the agreement should specify the fee, whether applicable taxes are included or added, invoicing and payment dates, and the services covered. The parties can agree instalments linked to clear milestones, but this is a contractual choice, not a franchise-specific legal rule.

Tie each milestone to a verifiable event, such as delivery of the initial package or completion of the agreed training. Avoid making a payment due on the basis of ‘readiness’ without defining it. Review the tax and accounting treatment with a specialist: the date on which payment is received does not, by itself, determine how it should be treated in the accounts.

Test what happens to the fee if the opening runs into difficulty

Before adopting a ‘non-refundable’ clause, consider each potential setback separately: the franchisee withdrawing, failure to secure suitable premises, inability to obtain licences, or delays in delivery by the franchisor. Do not assume that the cause, responsibility and financial outcome will be the same in every case.

Put a contractual mechanism in place that distinguishes between services already delivered, committed external costs and work that has not yet begun. Specify the supporting documents required, the deadline for requesting a settlement and how any refund or outstanding amount will be calculated. Have these provisions reviewed by a lawyer for enforceability.

The practical takeaway: before offering your first franchise, prepare three consistent documents: an internal costing sheet, a clear list of what the fee covers, and a contractual clause governing when payment falls due and what happens if the opening runs into difficulty. If they tell different stories, resolve the discrepancies before collecting any money.