Securing Franchise Fee Payments in Lebanon: How to Structure a Guarantee

When turning an existing business in Lebanon into a franchise model, agreeing on fees and payment dates is not enough; you also need to decide how to manage the risk of non-payment. A guarantee may be a suitable tool, but it is neither an automatic requirement for every franchise nor a substitute for assessing financial capacity. In franchising, a balanced guarantee protects the franchisor’s receivables without burdening the franchisee or their guarantor with an unclear obligation that exceeds the actual risks.

Start with the risks you want to cover

Before requesting a personal guarantee from the founder of the franchisee company, list the amounts that could remain unpaid. Distinguish between the initial franchise fee, ongoing royalties, goods supplied on credit and any agreed additional services. These are different obligations, and they do not necessarily all need the same security.

Consider when each amount becomes payable and whether you can limit your exposure. If the contract requires the initial fee to be paid before performance begins, securing that fee may not be the priority. Regular supplies of goods on credit, however, can create an outstanding balance that requires a credit limit and monitoring—not a broadly worded guarantee followed by neglect of the accounts.

Prepare an internal note covering:

• The obligation to be secured and the party entitled to payment.
• Why the amount could accumulate before payment difficulties are detected.
• The maximum acceptable financial exposure.
• Available alternatives, such as shorter payment terms or a lower credit limit for supplies.

This note is a decision-making tool, not a legal formula. The aim is to explain the reason for the guarantee to the prospective franchisee, rather than simply saying, ‘We require this from everyone.’

Understand the Lebanese framework and the type of security

Lebanon has no comprehensive law specifically governing franchise agreements, nor a franchise-specific disclosure regime prescribing a standard form of guarantee. Contractual obligations, including guarantees, are subject to the relevant general rules, principally the Code of Obligations and Contracts, with the Commercial Code applying where relevant. Laws relating to the business activity and intellectual property must also be observed, depending on the scope of the relationship.

Do not assume, therefore, that calling a document a ‘guarantee’ is enough to determine its legal effect. Personal guarantees, bank guarantees and cash deposits differ in the parties involved, their cost and the conditions for using them. Nor does an additional signature mean that payment can be recovered immediately or that no objections can be raised.

Ask a Lebanese lawyer to establish the nature and effects of the chosen instrument, including whether it is an ordinary guarantee or provides for joint and several liability, the defences available to the guarantor and the conditions for making a claim against them. Do not copy foreign wording that assumes procedures or rights incompatible with Lebanese law.

If the franchisee is a company, distinguish between its manager signing on the company’s behalf and signing personally as guarantor. The capacity in which each person signs must be clear, and the signatories’ legal capacity and authority should be checked, particularly where another legal entity provides the guarantee.

Set out the amount, duration and claim conditions in writing

The guarantor should be able to understand the limits of their obligation from the document itself. Avoid combining ‘all current and future amounts and any damages’ in a single, undifferentiated clause. Specify the debts covered, whether the cap includes costs and any interest that may lawfully be agreed, and how the amount claimed will be calculated.

The draft should clearly answer the following questions:

• What is the cap? Is it a fixed sum or specified obligations subject to a maximum amount, and in which currency?
• What period is covered? Does the guarantee cover only debts arising during a specified period?
• When must a claim be made? What documents and notices are required for the type of instrument chosen?
• What happens if the agreement changes? Does an increase in obligations or renewal of the contract require fresh consent from the guarantor?
• How does the security end? How will a release or the return of a cash deposit be documented when due?

In particular, distinguish between the date after which no new secured obligations can arise and the deadline for claiming debts that arose earlier. Confusing the two may leave one party believing the guarantee has ended while the other considers it still in force.

Do not assume that a guarantee automatically extends to an additional outlet or a separate supply agreement. Review its scope whenever the business expands, and document the necessary consents rather than relying on a later interpretation of general wording.

Make the guarantee part of fair financial monitoring

After signing, assign responsibility for keeping the guarantee document, monitoring its validity and cap, and reconciling the secured amounts with the accounts. A guarantee whose scope is not understood by the accounting team can create a false sense of security.

Use regular statements of account showing invoices, payments and disputed amounts. When payment is late, distinguish between an overdue, unpaid debt and an amount subject to a genuine dispute, and follow the agreed notice and claim procedures in accordance with the law. Do not use the guarantee to collect undocumented amounts or to exert pressure over obligations it does not cover.

Explain the instrument to the prospective franchisee and guarantor before signing, and give them an opportunity to have it independently reviewed. A reduction in the security can be considered later, based on a consistent payment record and lower exposure, provided the decision is clearly documented.

Practical takeaway: Before granting a franchise, map the risks, choose proportionate security, and obtain a legal review of its amount, duration and claim conditions. A good guarantee is an understandable, manageable commitment—not an open-ended undertaking covering every eventuality.