Franchise disputes: what to check in the contract before you buy

When buying a franchise, entrepreneurs usually focus on the launch and profitability, overlooking the dispute resolution section. Yet this section determines where to turn if the contract is breached, how long to wait for a response and how to substantiate a claim. For franchisors and franchisees alike, a clear process for resolving disagreements can help preserve working relationships, not just prepare for litigation. Check it before signing any documents or making the first payment.

1. Establish which rules will apply

In Russia, commercial concession arrangements — the legal framework used for franchising — are governed by Chapter 54 of the Civil Code of the Russian Federation. The Civil Code’s general provisions on obligations, contracts and liability also apply. The Commercial Procedure Code of the Russian Federation sets out the procedure for business disputes heard by state commercial courts, known in Russia as arbitrazh courts. There is no separate, universally applicable law guaranteeing franchise buyers a return of their investment if the launch fails.

Buying a franchise for business purposes is not a consumer purchase. You therefore cannot rely on consumer protection rules on refunds, statutory penalties or choice of court simply because you consider yourself the weaker party to the transaction.

Before negotiations, draw up a list of potential disagreements: documents not supplied, delayed training, incorrectly calculated fees or demands for additional payments. For each scenario, identify a specific obligation, deadline and means of confirming performance in the draft contract. If an obligation is vaguely worded, a convenient route to court will not, on its own, solve the problem.

Also check that the dispute resolution procedures in the main agreement and its schedules are consistent. Conflicting provisions create further uncertainty before the substance of any breach is even discussed.

2. Make the pre-action claims procedure workable

A formal pre-action claim is not simply a message to a manager expressing dissatisfaction: it is a formal demand addressed to the other contracting party. It usually identifies the contract, the breach, the circumstances, the action required and, for a monetary claim, a calculation of the amount sought.

For certain monetary claims arising from contracts, Russia’s Commercial Procedure Code provides for proceedings in a state commercial court once 30 calendar days have elapsed from the date the formal claim was sent, unless legislation or the contract sets a different period or procedure. This rule should not be applied automatically to every dispute: whether a mandatory pre-action procedure applies depends on the claim.

The contract should specify:

• addresses for sending legally significant notices;
• permitted delivery methods and ways of proving delivery;
• the deadline for responding to a formal claim;
• the documents required for it to be considered;
• the procedure for notifying changes of postal or email address.

Clarify separately whether formal claims may be sent electronically. If so, specify the parties’ email addresses and a method that allows the sender and the content of the message to be established. Correspondence with a sales employee does not always constitute proper notice to the rights holder itself.

Be wary of procedures that are difficult to complete, such as mandatory negotiations with no deadline or referrals to several departments without anyone being assigned responsibility. Propose a fixed negotiation period and a clear point at which it ends. Discussions about a compromise should not become an indefinite wait for approval.

3. Check where you would have to enforce your rights

As a general rule, a claim in a state commercial court is brought at the defendant’s address or place of residence. Within the limits set by procedural law, the parties may agree in advance to change the territorial jurisdiction. The contract may therefore move any future dispute to the region where the franchisor’s head office is located.

Consider the practical as well as the legal consequences. Would you need to travel, appoint a local representative or send original documents? Remote participation is not always available and does not eliminate the cost of preparing a case. Compare these costs with the likely value of your claims: an inconvenient court location can be particularly burdensome in lower-value disputes.

Do not confuse Russia’s state commercial courts with private arbitration. A clause referring disputes to arbitration needs a separate review. Ask a lawyer to establish which institution would administer the proceedings, whether the clause is valid, which rules and fees apply, and how the arbitrators are appointed. The grounds for challenging an arbitral award are limited; this is not an ordinary appeal reviewing the merits of the case.

If the proposed clause specifies a foreign court or proceedings abroad, assess the costs of legal representation, translation and enforcement in advance. Do not accept such a clause simply because it is described as standard for the brand.

4. Prepare your evidence and legal budget

Before buying, agree how the parties will record the performance of their obligations. Document handovers require an inventory and confirmation of delivery; training requires a programme, dates and participant details; approvals require an agreed correspondence channel and designated authorised individuals.

Check the acceptance provisions. A clause deeming a service accepted unless objections are raised within a short period requires regular monitoring of incoming messages. Propose sufficient time for review and a specific method for submitting reasoned objections.

Keep the contract and all its schedules, payment records, acceptance certificates, formal claims and proof that they were sent. For electronic correspondence, retain not just individual screenshots but also information about senders, dates and context. If a serious dispute arises, discuss with a lawyer the appropriate way to preserve digital evidence for use in proceedings.

Finally, budget for court fees, legal representation and, where necessary, expert assessments. Even if you win, recovery of everything you have spent is not guaranteed: the court assesses litigation costs under procedural rules, including whether legal representation costs are reasonable.

Practical takeaway: before paying for a franchise, check four things: how to document a breach, where to send a formal claim, when you can seek legal redress and where the dispute will be heard. The answers should come from the law and the agreed documents, not the seller’s verbal assurances.