Franchise sellers’ promises: how to put them in writing before you buy

During negotiations, prospective franchisees hear plenty of claims: ‘None of our outlets have closed’, ‘The format has already been tested’, ‘You don’t need a licence to operate’. Yet after paying, they may discover that none of these statements appears in the contract. In franchising, trust needs documentary support. Below is a process for checking and recording the information on which you base your purchasing decision in Russia, rather than a guide to assessing profitability or carrying out due diligence on the seller.

1. Separate facts, forecasts and obligations

Start with a separate list of the seller’s material statements. Include information from presentations, commercial proposals, correspondence and meetings. For each statement, record its source, date and why it affects your willingness to enter into the agreement.

Then divide the statements into three groups:

• Facts: how many company-owned and franchisee-operated outlets are trading, whether the format has been tested at an operating site, and whether a particular person or entity holds the necessary permits.
• Forecasts: anticipated demand, the time needed to reach planned capacity utilisation, and the expected rate of customer acquisition.
• Obligations: what the seller must do after the agreement is signed, and by when.

This distinction determines how you can protect your position. A fact can be supported by documents and recorded as a formal representation of fact. A forecast needs to state its underlying assumptions: it does not, by itself, amount to a guarantee of results. A future action should be described as a contractual obligation, not as an existing fact.

For example, ‘Our format does not require a licence’ is too broad. Ask the seller to specify the activities and services covered, together with the legal basis for the claim. A permit issued to the franchisor does not usually mean that an independent franchisee can operate without its own permit. This distinction is particularly important for healthcare and education businesses.

2. Understand Russia’s disclosure rules

Russia has no single mandatory pre-contractual franchise disclosure document equivalent to the prescribed forms used in some other countries. Nor is there a general, franchise-specific minimum period for which a buyer must hold such a document before paying. You should therefore agree with the seller what information will be provided.

This does not mean that the relationship is unregulated. Chapter 54 of the Civil Code of the Russian Federation governs commercial concessions, the legal framework used for franchising. Under Article 1027, the user is granted a package of exclusive rights that includes the right to use a trade mark or service mark. Article 1028 requires the agreement to be in writing and the grant of the right to use that package to be registered with Rospatent, Russia’s intellectual property authority. Without registration, the grant of rights is deemed not to have taken effect. What matters legally is the substance of the transaction, not the word ‘franchise’ on the cover.

Article 434.1 of the Civil Code is important during negotiations: the parties must act in good faith. Providing incomplete or inaccurate information, including withholding facts that should be disclosed to the other party given the nature of the agreement, may give rise to liability. This is not, however, a duty to disclose every piece of commercial information a buyer requests.

Another tool is formal representations of fact under Article 431.2 of the Civil Code. These allow the parties to record material information and specify the consequences if it proves inaccurate. Do not rely instead on a consumer ‘cooling-off period’: purchasing rights for business purposes does not normally fall within consumer protection legislation.

3. Request supporting evidence and formalise representations

Send the seller a single written request rather than a series of disconnected questions to a sales representative. Ask for information as at a specified date and with a clearly defined scope. Instead of accepting ‘The network is growing successfully’, request a list of outlets that opened or ceased trading during an agreed period, distinguishing company-owned outlets from franchisee-operated ones.

If documents contain personal data or trade secrets, suggest anonymised copies, an aggregated summary or access under a non-disclosure agreement. Refusal to provide the underlying materials does not prove deception, but it leaves the relevant fact unverified. Do not let the seller’s confidence fill that gap.

Include material facts in a signed schedule to the agreement. For each representation, specify:

• precise wording without promotional claims;
• the date as at which it is made;
• the documents supporting it;
• any known exceptions expressly disclosed to the buyer;
• the consequences of inaccuracy and the procedure for bringing a claim.

For example: ‘The rights holder represents that the schedule contains a complete list of franchisee-operated outlets that ceased trading under the brand during the specified period.’ This wording is verifiable. ‘All our franchisees are happy’ is not.

Article 431.2 provides for damages or payment of a contractual penalty where the statutory conditions are met. A material inaccuracy may also provide grounds for withdrawing from the agreement, unless the parties have agreed otherwise. This does not mean an automatic refund: the contract wording, the materiality of the information, the evidence and the circumstances of the dispute all matter. Agree the wording with a lawyer before signing.

4. Preserve evidence before transferring money

Download the presentation and record when you received it. Keep emails and correspondence in their original file formats. For important website pages, record the URL, date and content. If there is a high risk of a dispute, discuss having evidence formally preserved by a notary with your lawyer: an ordinary screenshot may leave questions about its source and publication date unresolved.

After a verbal discussion, send a short summary: ‘Have we understood correctly that…?’ Ask for explicit confirmation. Silence should not be treated as agreement. A sales employee’s reply is useful evidence of the negotiations, but material representations are best obtained from the contracting party, signed by an authorised representative.

Before paying, compare the final agreement with your list of promises. Pay particular attention to clauses stating that presentations are for information only, or that the buyer is not relying on information outside the agreement. Such clauses do not make bad faith permissible, but they can complicate a dispute over what was promised.

Practical takeaway: every statement by the seller that is decisive to your purchase should become either a verified fact backed by a written representation, a specific obligation or a clearly identified forecast. If an important promise remains purely verbal, do not treat it as a guaranteed benefit of the purchase.