Confidentiality When Buying a Franchise: Reviewing the Agreement

Before you buy a franchise, the seller may ask you to sign a confidentiality agreement before sharing internal manuals, financial projections or operating terms. Protecting this information is standard practice in franchising. However, the document should not prevent you from assessing the offer with a solicitor and an accountant. Here is how to set clear limits on confidentiality and avoid taking on unnecessary obligations before the main transaction.

1. Separate confidentiality from any obligation to buy

A confidentiality agreement governs how information is handled, not the purchase of the franchise itself. Check whether it contains any obligation to sign the main contract, pay for access to materials, reserve a territory or reimburse the seller for all negotiation costs. These provisions need separate consideration: a document’s title does not determine its legal substance.

In Russia, commercial concession agreements — the legal framework used for franchising — are governed by Chapter 54 of the Russian Civil Code. However, information protection begins before such an agreement is signed. Article 434.1(4) of the Civil Code provides that a party receiving information supplied as confidential during negotiations must not disclose it or improperly use it for its own purposes. This rule applies whether or not the transaction goes ahead.

Russian law does not, however, require a specific franchise disclosure document comparable to the standardised forms used in some other countries. You should therefore agree directly with the seller which information will be available for review and how you can access it.

Ask for an express statement that signing the agreement does not oblige you to buy the franchise. A good-faith decision not to proceed should not, in itself, count as a breach of confidentiality or trigger a penalty. Ending negotiations does not, however, cancel confidentiality obligations that have already arisen.

2. Define which information is actually protected

The phrase ‘any information about the rights holder’ is too vague for day-to-day use. As a buyer, you need to understand which documents you must not forward, whom you may show them to and what you may use them for.

Propose that the agreement specify:

• the categories of protected information: internal manuals, non-public financial calculations and technical descriptions;
• the methods of disclosure: agreed email addresses, a restricted-access folder or an in-person meeting;
• how information will be marked as confidential and how oral disclosures will be confirmed;
• exceptions for publicly available information and information lawfully obtained from another source;
• the permitted purpose: assessing the offer and preparing for a possible transaction.

A practical way to document an oral presentation is through a follow-up email in which the seller identifies the specific information it regards as confidential. Agree a deadline for this confirmation. Otherwise, several months later, it may be difficult to establish what was discussed and which restrictions applied.

Distinguish between contractual confidentiality, the statutory trade secret regime and know-how. Federal Law No. 98-FZ ‘On Commercial Secrets’ sets out measures for establishing the relevant protection regime, including identifying the information covered and restricting access. Protection of know-how under Article 1465 of the Russian Civil Code depends on the information having commercial value because it is unknown to third parties, not being freely and lawfully accessible, and being subject to reasonable measures to preserve its confidentiality.

Not every file marked ‘secret’ automatically qualifies as know-how. Equally, the absence of a formal trade secret regime does not mean that contractual obligations or the confidentiality rules governing negotiations can be ignored.

3. Preserve your ability to carry out an independent review

The main practical risk is a ban on sharing materials with anyone without the seller’s separate written permission. This can make a proper review impossible: your solicitor cannot see the draft contract, and your accountant cannot examine the data underlying the financial projections.

Agree in advance who will be allowed access. This will usually include a legal adviser, an accountant, a prospective lender and a partner involved in the purchase. Access should be limited to what each person needs to assess the transaction and should be subject to confidentiality obligations. Clarify whether each person must sign a separate agreement or whether the buyer’s commitments to manage access are sufficient.

Discuss technical restrictions too. May materials be stored in an adviser’s working folder? Are extracts permitted? Can files be uploaded to cloud services? Do not upload confidential documents to publicly available analysis services unless this has been agreed.

Include a separate provision for disclosure required by a court or public authority acting lawfully. The agreement should not make compliance with a binding requirement conditional on the seller’s permission. It may require notification to the other party where the law permits this.

If the document prohibits all contact with existing franchisees, propose an agreed process for interviews. To assess the business opportunity, you can ask about their operating experience without disclosing the confidential materials you have received.

4. Check penalties and what happens after negotiations end

Read not only the amount of any contractual penalty, but also the definition of a breach. Wording such as ‘for each instance’, without explanation, can lead to disputes: does one email with several attachments count as one instance or several? Clarify how recipients, files and repeated sending are counted.

Check how contractual penalties interact with damages, the rules on liability for advisers and the procedure for reporting a leak. Article 333 of the Russian Civil Code allows a court to reduce a clearly disproportionate contractual penalty, but you should not assume that this protection is guaranteed.

Agree how long the obligations will continue after negotiations end and how materials must be deleted. An absolute requirement to destroy every copy immediately may conflict with the need to retain evidence or comply with legal requirements. Discuss permitted archival retention with restricted access and continuing confidentiality, as well as how backup copies will be handled.

Practical takeaway: before receiving confidential materials, agree on four points: what is protected, who may review the documents, which actions constitute a breach and what happens if you decide not to buy. A good agreement protects the seller’s confidential information without turning franchise due diligence into a ban on asking questions.