Confidentiality When Buying a Franchise: Reviewing the Agreement

Before sharing financial statements and internal manuals, a franchisor may ask you to sign a confidentiality agreement. Protecting non-public information is standard practice in franchising. However, the agreement should not turn your assessment of a franchise into a commitment to buy it or prevent you from consulting independent advisers. Here are the terms to agree before receiving confidential materials.

1. Separate confidentiality from a commitment to buy

In Russia, commercial concession arrangements — the legal framework used for franchising — are specifically governed by Chapter 54 of the Russian Civil Code. A confidentiality agreement signed while choosing a brand is a separate document: it does not, on its own, grant the right to operate under a trade mark or replace a commercial concession agreement.

Article 434.1(4) of the Russian Civil Code is relevant to negotiations. If a party receives information supplied as confidential, it must not disclose that information or misuse it for its own purposes. This rule applies whether or not the main contract is ultimately concluded. The absence of a separate confidentiality agreement therefore does not mean you are free to publish confidential materials you receive.

Russian law does not prescribe a specific mandatory pre-contractual franchise disclosure document. It is therefore worth agreeing not only restrictions on the buyer, but also how materials will be provided for due diligence.

Before signing, establish:

• who is providing the information and exactly who is intended to receive it;
• the purposes for which it may be used;
• which documents the franchisor will provide and by when;
• whether you can decide against buying after your review without paying a separate fee.

Agreeing to confidentiality does not mean agreeing to the deal. Check whether the document includes a territory reservation, an obligation to pay a fee or a ban on negotiating with other brands. These terms need to be assessed in their own right, even if the document is simply called a non-disclosure agreement.

2. Define which information is genuinely confidential

Wording such as ‘any information about the franchisor’ creates unnecessary uncertainty. It could be used to argue that a public presentation, information from official registers or the buyer’s own calculations are covered. It is better to define clear categories of information and specify how confidential material will be identified.

For example, the parties might agree that confidential information includes non-public reports from individual outlets, technical operating instructions and supplier terms shared through an agreed channel. For information shared verbally at meetings, it is useful to require subsequent written confirmation of exactly what was confidential.

Ask for exclusions covering information that:

• was publicly available without any breach of the agreement;
• was already lawfully held by the recipient before negotiations began;
• was lawfully obtained from another person without a duty to keep it confidential;
• was developed independently by the recipient without using confidential materials.

Make provision for these circumstances to be supported by documentary evidence, such as dated files, correspondence or published presentations. Simply saying ‘I already knew that’ may not be enough in a dispute.

Do not confuse contractual confidentiality with the statutory trade secret regime. Federal Law No. 98-FZ ‘On Commercial Secrets’ provides for specific measures to protect information. Signing an agreement does not, in itself, establish that the information holder has met all the requirements of that regime. Contractual confidentiality obligations can nevertheless exist independently of it.

3. Preserve your ability to carry out an independent review

A buyer will often need a lawyer, an accountant and a financial adviser. If the agreement prohibits disclosure to any third party, sending the contract to your adviser could give rise to a claim. Do not assume that the need for professional due diligence automatically overrides a contractual restriction.

Agree a list of permitted recipients: employees, external advisers, a prospective lender or a project partner — but only those genuinely needed to assess the deal. Establish whether separate consent from the franchisor is required, how to request it and the deadline for a response.

A practical approach is to allow advisers access to the information they need, provided they are also bound by confidentiality obligations. Check separately whose actions you are responsible for and what steps you must take before sharing files.

Include a procedure for disclosure required by a lawful request from a court or public authority. Any requirement to notify the franchisor should apply only to the extent permitted by law.

Put your own safeguards in place too: keep documents in a separate folder with restricted access, record who receives them and do not forward reports to general group chats. If the materials contain customers’ or employees’ personal data, a confidentiality agreement does not replace the need for a lawful basis for processing it. Anonymised information is preferable for an initial review.

4. Check liability and what happens when negotiations end

Examine what counts as a breach: sending a file to an unauthorised person, publication, use of a technical process or even failing to delete a copy on time. Pay particular attention to how contractual penalties are calculated: per document, recipient, incident or day of breach. A seemingly straightforward amount can result in substantially greater liability because of the calculation method.

Clarify how contractual penalties interact with damages. Do not assume that a penalty necessarily caps all possible claims. Nor should the possibility of a court reducing a penalty be treated as a substitute for negotiating the terms.

Agree in advance how long confidentiality obligations will last and what happens if you decide not to buy. Requirements to return documents, delete working copies and confirm deletion must be technically feasible. Separately agree whether an archive copy may be retained to protect your legal rights and comply with legal requirements, while keeping restrictions on its use in place.

Practical takeaway: sign the agreement once four things are clear: which information is confidential, who you may show it to, what liability you face and what to do when negotiations end. Protecting information should allow you to assess the franchise, not force you to buy it blind.