Franchise security deposits: how to protect your repayment

Before joining a franchise network, distinguish between the cost of the arrangement and money paid as security for your obligations. A security deposit should not be treated as another non-refundable fee. However, it may remain out of reach for as long as you operate the outlet, and recovering it depends on the contract terms and the recipient’s financial position. Agree the rules for paying, using and returning the deposit before signing the contract.

1. Establish what the payment actually represents

Security arrangements take various forms in the Polish franchise market. Żabka, for example, lists a promissory note, bank guarantee or cash deposit among its accepted options. This does not mean that every brand offers such a choice, or that each instrument has the same implications for the business owner.

How the payment is accounted for and returned determines its nature, not simply its name. Ask for clarification on whether the money is refundable security, an advance payment for a specific service or supply, or remuneration for the franchisor. If the document calls the payment a deposit but allows it to be retained regardless of whether any debt exists, that provision warrants particular scrutiny by a lawyer.

In Poland, a franchise agreement is an “unnamed contract”: it is not a separately defined contract type under the Civil Code. There is no separate statute comprehensively regulating franchising, nor any specific requirement to register franchise agreements. There is also no generally applicable statutory pre-contractual disclosure regime specifically for franchising. Do not treat a deadline for providing documents proposed in draft legislation as an enforceable safeguard.

Security deposit arrangements are governed primarily by the Polish Civil Code, including the principle of freedom of contract in Article 353¹. That freedom is limited by the law, the nature of the legal relationship and the principles of social coexistence. General provisions on performing obligations, liability and set-off also matter. Do not assume, therefore, that there is a statutory repayment deadline specifically for franchise security deposits.

2. Limit what the deposit covers and how it can be used

Wording such as “the deposit secures all claims arising from the business relationship” offers little certainty. Before investing in a franchise, draw up an exhaustive list of the obligations that may be covered by the deposit. These might include unpaid contractual fees or amounts owed for supplies, for example, but each permitted use should be set out in the agreed terms.

Check in particular:

• whether the security covers only your obligations to the other party to the contract, or also obligations to other companies;
• whether the money can be used to cover claims that are not yet due or are disputed;
• what documents must support a deduction;
• whether you will receive a demand for payment and time to respond before the deposit is used;
• who will consider your objections and within what timeframe.

It is worth negotiating a requirement for a written statement of every amount drawn from the deposit, identifying the contractual basis and supporting documents. An entry in the accounting system should not replace an explanation of why the amount is owed.

Distinguish between statutory set-off and a contractual mechanism for drawing on security. The contract may establish its own settlement rules, so do not assume that every deduction from the deposit will automatically be subject to all the conditions governing statutory set-off. Ask a lawyer to assess the specific clause and the available ways to challenge a deduction.

3. Calculate the cost of tying up funds and topping up the deposit

The initial payment is only part of the risk. The contract may require you to replenish the security whenever it is used, or allow it to increase as your purchases grow. In that case, the deposit becomes a recurring demand on cash rather than a one-off start-up outlay.

Insist on clear answers to four questions: what is the maximum amount of security, when can it increase, how long do you have to top it up, and what happens if you fail to do so? Avoid leaving the amount entirely to the other party’s discretion without defined criteria.

Also establish whether the deposit earns interest and who is entitled to any bank interest. Do not assume that you will receive it automatically. If the network accepts an alternative form of security, compare the set-up costs, any additional collateral required and the effect on your access to funds.

Check who actually holds the money. Paying it into the franchisor’s ordinary bank account does not automatically create a separate, protected pool of funds. If the franchisor becomes insolvent, recovering the deposit may be difficult. Even a separate administrative account does not necessarily provide protection from creditors: what matters is the legal structure of the arrangement, not its marketing label.

4. Put the repayment procedure in writing before transferring funds

Repayment should not depend solely on a general statement that “all accounts have been settled”. Without a deadline and a procedure, such a condition could leave you waiting a long time.

Negotiate a specific deadline running from a clearly defined event, a requirement to provide a final statement of account, and repayment of the undisputed portion of the deposit. If some amounts need to be settled later, specify the maximum sum that may be retained and a final deadline for settling it. A minor dispute should not, in itself, justify retaining the entire deposit indefinitely.

Keep the transfer confirmation, subsequent statements showing how the deposit has been used, and correspondence about top-ups. Reconcile the deposit balance with your own records rather than waiting until the relationship ends. Also establish whether repayment is automatic or requires an application, and which account the money will be paid into.

Practical takeaway: before paying, prepare a one-page deposit summary covering the recipient, amount, secured obligations, rules for using it, top-up limit and repayment deadline. If any of these points cannot be clearly established from the contract, clarify them before handing over the money.