Non-compete Clauses in Lebanese Franchise Agreements: How to Set Clear Limits

When you franchise an established business in Lebanon, you allow an independent partner to use know-how and working methods you have developed through experience. But protecting that know-how does not mean preventing the franchisee from carrying on any other business. A non-compete clause needs a clear purpose and limits that can be understood and applied, so that it protects relationships within the franchise network rather than becoming a constant source of disputes.

1. Start with the interest you want to protect

Before asking for the clause to be drafted, write down exactly what you are concerned might happen. Could the franchisee run a similar business alongside yours, using your recipes or service delivery methods? Are you worried about customers being diverted to another brand they own? Or is your concern about information being disclosed to a competitor? These are different risks, and a single clause will not address them all in the same way.

A non-compete clause is not a substitute for confidentiality obligations. Confidentiality governs the disclosure or use of protected information, while a non-compete clause restricts a defined business activity. Diverting customers or poaching staff may require separate provisions reviewed by a lawyer, rather than an automatic broadening of the definition of competition.

Prepare an internal note covering:

• The know-how or commercial relationship that needs protection.
• The conduct that could genuinely harm it.
• Why a less restrictive obligation would not adequately address the risk.
• The individuals and entities that will actually be involved in operating the franchise.

For example, if your business is a café, a franchisee owning a stake in a furniture shop is not the same as running a rival café targeting the same customers. Do not let the phrase ‘any other business activity’ obscure that distinction.

2. Separate restrictions during the agreement from those after it ends

During the agreement, the practical question is: which activities conflict with operating the outlet under the agreed system? Define the competing products or services and the forms of involvement you intend to cover, such as direct management, ownership or providing operational services to a competitor. Do not rely on the word ‘competition’ without a definition both parties can apply.

Also discuss situations that warrant separate treatment: an existing business disclosed by the prospective franchisee before signing, for example, or a limited financial investment that gives them no management role. Exceptions can be governed by specific written consent rather than verbal promises or undocumented approvals.

Treat any restriction after the agreement ends as a separate matter requiring its own justification and legal review. Do not assume that making the clause continue automatically, or setting a lengthy restriction, makes it stronger. Discuss the following with your lawyer:

• The precise activity to be prohibited, rather than every remotely similar business.
• The geographical scope relevant to the interest being protected.
• The duration of the restriction and whether it is proportionate to its purpose.
• How expiry or early termination, and the reasons for termination, affect the drafting.

Test the boundaries against real situations: does the restriction cover a different service? What about a business outside the outlet’s area? How does it deal with a business taking orders online? The answers should be reflected in the wording, not left to guesswork after a dispute arises.

3. Understand Lebanon’s legal framework before adopting the clause

Lebanon has no comprehensive franchise-specific law, nor a statutory franchise disclosure regime requiring a standardised disclosure document. The relationship is governed primarily by the Code of Obligations and Contracts, with provisions of the Commercial Code, intellectual property rules and other general rules applying according to the issue concerned.

The legal review should also cover Competition Law No. 281 of 2022, to the extent that its provisions apply to the proposed arrangement. The fact that non-compete clauses appear in commonly used agreements is not sufficient evidence that any particular wording is lawful or enforceable. Nor does protecting operational know-how give the franchisor a blanket exemption from competition rules or public policy requirements.

Ask a Lebanese lawyer to assess the clause in the context of the agreement as a whole, taking into account the nature and scope of the business and the effect of the restriction. Do not copy a foreign clause, including its time limits and geographical distances, unchanged: it may be based on a different legal system or circumstances unlike those of your business.

Likewise, do not assume that a signature from the franchisee company is enough to bind every shareholder or director personally. Identifying the parties to be bound, and any personal undertakings required, calls for appropriate drafting and signatures, alongside a separate review of their validity.

4. Turn the clause into a clear process before granting the franchise

Explain the substance of the restriction to the prospective franchisee in plain language before they commit, and ask for a statement of any existing activities that might overlap with it. The aim is not to collect unlimited information, but to identify potential conflicts early. Record agreed exceptions in a schedule consistent with the agreement, and specify who has authority to approve them.

Also establish a process for seeking approval for a new activity: what information is required, who reviews it and how a written response will be issued. Avoid leaving the franchisee caught between a broad prohibition and an approval process they do not know how to navigate.

If you suspect a breach, gather the facts through lawful means and refer to the agreement’s procedures and legal advice. Do not assume that suspicion immediately justifies cutting off supplies, withdrawing support or demanding compensation in an amount you decide unilaterally.

The practical takeaway: Before granting the franchise, prepare a definition of competing activity, separate limits for the period during and after the agreement, and a list of exceptions and parties to be bound. Then have these legally reviewed and discuss them with the prospective franchisee. The best protection is a clear, justified restriction—not the broadest possible ban.