Sub-franchising in Lebanon: How to Set Clear Limits on Authority

An investor may propose expanding an established Lebanese business’s brand not just by operating outlets, but by granting franchises to other investors. The question then is no longer how many outlets can open, but who has the authority to bring new members into the franchise network, and who ensures they receive the know-how and support they need. Sub-franchising requires its own contractual and operational framework, not a general clause permitting expansion.

1. Distinguish operating rights from the right to grant franchises

A franchisee that operates several outlets itself is different from a master franchisee that grants independent parties the right to operate the business under the brand. The latter arrangement creates an additional contractual layer: an agreement between the original franchisor and the master franchisee, alongside separate agreements with sub-franchisees. This changes how oversight, support and fee collection work.

Start by defining whether the authority granted covers only finding candidates, negotiating with them, or signing agreements in the master franchisee’s own name. Do not treat introducing candidates as equivalent to having the authority to bind the franchisor. Also clarify whether the master franchisee may operate its own outlets alongside sub-franchised outlets, and how its obligations in each capacity are kept separate.

Before approving a candidate, assess their ability to manage a network, not merely a successful shop. Do they have a team to assess applications, oversee openings and document support? Can they fund these functions before recurring revenue develops? Success as an operator does not automatically demonstrate readiness to become a sub-franchisor.

2. Base the arrangement on Lebanon’s legal framework

Lebanon has no comprehensive franchise-specific law, nor a dedicated national regime requiring franchise agreements to be registered or a disclosure document to be provided in a prescribed format comparable to those used in some countries. The Code of Obligations and Contracts and general commercial rules therefore play a central role in structuring the relationship. Ordinary requirements relating to commercial registration, taxation and the relevant business activity still apply.

The nature of the relationship also requires a separate legal assessment. Depending on the substance and legal classification of the arrangement, Legislative Decree No. 34 of 1967 on commercial representation may be relevant; calling the arrangement a franchise does not settle the issue. Consumer Protection Law No. 659 of 2005 also applies to transactions within its scope, and a franchise agreement does not replace those obligations.

Ownership and protection of the trade mark in Lebanon should be checked under Decision No. 2385 of 1924, as amended, concerning commercial and industrial property rights. Crucially, the licence should expressly authorise sub-licensing within defined limits. The right to use a trade mark should not be assumed to include the right to license it to others.

The absence of a mandatory franchise-specific disclosure document does not justify concealing the original franchisor’s identity or the limits of the master franchisee’s authority. Explain those limits to prospective sub-franchisees before they commit, and ask a Lebanese lawyer to review both agreements together rather than each in isolation.

3. Establish an approval matrix before accepting candidates

Turn the delegated authority into a clear list of decisions. For each decision, specify who proposes it, who reviews it, who approves it and how approval is recorded. The list should cover accepting candidates, approving sites, amending the template agreement, authorising use of the trade mark and advertising the franchise opportunity.

In practice, authority can be divided as follows:

• Tasks handled by the master franchisee: collecting applications, carrying out initial checks on financial capacity and organising visits.
• Decisions requiring the original franchisor’s approval: accepting a sub-franchisee, allowing exceptions to business standards and making material amendments to the agreement.
• Actions outside the delegated authority: transferring ownership of the trade mark, granting rights beyond the agreed scope or allowing further tiers of sub-franchising without permission.

Attach an approved sub-franchise agreement template, identifying the clauses that cannot be changed and the procedure for approving exceptions. Set a reasonable deadline for responding to a complete application and specify what happens if no response is received. Do not leave silence open to interpretation as approval to admit a new partner.

For example, if a master franchisee promises a candidate rights beyond those it holds, a dispute may arise even if the original franchisor refuses approval. Prevention starts with prohibiting unauthorised promises, reviewing recruitment materials and making the limits of authority clear in the documents given to candidates.

4. Link revenue to responsibilities and contractual continuity

Map out the flow of fees: who invoices the sub-franchisee, who collects payment and what share is due to each party? Then link each payment stream to a specific function. If the master franchisee retains fees for training and support, its responsibilities should be clearly defined and capable of being monitored, with the original franchisor’s direct contributions also specified.

Align reporting schedules and the arrangements for accessing essential performance information. Ensure that the sub-franchisee is not charged twice for the same service without prior explanation, and that the agreements address how support will continue if a financial dispute arises between the two parties above it in the chain.

Finally, examine what happens to sub-franchise agreements when the master franchise agreement ends. Do not assume they transfer automatically to the original franchisor. Discuss a transfer mechanism or direct contractual arrangement, the approvals required, prepaid fees and continued use of the trade mark during any lawful transitional arrangement.

Practical takeaway: Before delegating the right to grant franchises, prepare a clear allocation of authority, an approved sub-franchise agreement template and a schedule of financial and operational responsibilities. If you cannot identify who approves, who provides support and who bears responsibility for each promise, the arrangement is not yet ready.