Franchisor representations: how to put promises into the contract

When buying a franchise, an entrepreneur hears plenty of claims: all outlets are trading, intellectual property rights are in order, and there are no legal claims. Yet the sales presentation and the contract often describe different terms. In franchising, trust needs documentary support. One way to protect the buyer is through representations of fact: specific statements by the franchisor that carry legal consequences if they prove inaccurate.

How a representation differs from a promise of results

In Russia, commercial concession agreements — the legal framework used for franchising — are governed by Chapter 54 of the Russian Civil Code. Representations of fact are also subject to the general rule in Article 431.2 of the Code. This covers inaccurate representations that are relevant to entering into, performing or terminating a contract. Such representations may be made before, when or after the contract is signed.

The practical purpose is to record which facts the seller confirms and what information the buyer relies on when making a decision. Where the statutory conditions are met, an inaccurate representation may provide grounds for claiming damages or a contractual penalty. If the representation was material, the law allows the recipient to withdraw from the contract unless the parties have agreed otherwise.

A representation of fact is not a guarantee of commercial success. A statement such as ‘the brand has strong prospects’ is too subjective. By contrast, ‘the outlets listed in the schedule are operating as at the specified date’ can be checked. A claim that ‘your outlet will definitely recoup its investment’ needs separate analysis: it combines a forecast with a promise of an outcome that depends on numerous factors.

Do not assume that every advertising claim automatically falls within Article 431.2. The substance of the statement, the circumstances in which it was made and whether the buyer relied on it all matter.

Which facts should you record before buying?

Start not with a generic legal template, but with a list of statements without which you would not proceed with the deal. Select a few genuinely material facts and ask for written confirmation.

The following categories are worth discussing:

• The state of the network. Which outlets are operating on a specified date, which belong to the franchisor and which are run by independent partners. Temporarily closed outlets should be identified separately.
• The source of performance figures. If the seller has supplied figures for a particular outlet, establish the period they cover, the records they come from and which expenses they include. The representation should concern the accuracy of the underlying data, not your ability to replicate another outlet’s results.
• The lawful use of the materials supplied. Confirmation that using the intellectual property in the agreed ways does not infringe third-party rights.
• Known constraints. Claims received, legal proceedings or other circumstances that could prevent the franchisor from fulfilling specific obligations to the buyer.

Avoid sweeping statements such as ‘the company faces no risks whatsoever’. Instead, define the subject, date and scope of each statement. For example, specify which types of claims are covered and which assets they concern.

If there are exceptions, set them out in a schedule. An openly disclosed dispute is more useful than a formal confirmation that is known to be untrue. The buyer can then assess the consequences and adjust the terms before paying.

How to make representations usable in practice

A practical approach is to include a separate section in the contract and a schedule setting out the facts being confirmed. The wording should expressly link the schedule to the contract, state its date and ensure it is signed by authorised representatives of both parties.

Agree four elements for each representation:

1. Precise content. Exactly what the franchisor confirms, without promotional language or undefined shorthand.
2. The date on which it is accurate. For example, the date the contract is signed. If there is a gap between signing and a substantial payment, discuss obtaining fresh confirmation.
3. Its importance to the buyer. State that the franchisee relies on the information when entering into the contract, agreeing the price or making other decisions.
4. Supporting documents. List the schedules, extracts and tables that establish exactly what information was supplied.

Include a separate obligation to report changes up to an agreed stage of the transaction. A fact that was accurate at signing may change later; that alone does not make the original representation false.

Check the rest of the contract too. Clauses stating that ‘the buyer has not relied on information supplied by the seller’ or ‘all information supplied is for reference only’ may make it harder to enforce your rights. They need to be reconciled with the representations section, rather than left unnoticed as standard wording.

Which consequences should you agree, and what should you keep?

Discuss the liability arrangements with a lawyer: damages or a contractual penalty, the procedure for making a claim and the documents needed to support it. Do not assume that every breach automatically entitles you to all these payments at once, as well as a full refund of the franchise price.

For the most important representations, separately check whether you can withdraw from the contract and what the financial consequences would be. Repayment of fees, ending use of the brand and settling amounts for obligations already performed all require agreed terms. Simply calling a section ‘Franchisor guarantees’ does not resolve these issues.

Keep signed schedules, correspondence containing specific answers, versions of presentations and evidence of expenditure. For a damages claim, showing that a statement was inaccurate is usually not enough: you will need to substantiate the loss and its connection to the inaccurate information. Correspondence can also help establish why a particular fact mattered to the transaction.

Representations do not replace independent due diligence or mandatory legal procedures. For example, under Article 1028 of the Russian Civil Code, the grant of the right to use a package of exclusive rights under a commercial concession agreement must be registered with the state. Without registration, the grant is deemed not to have taken place. A seller’s statement that the documents are ready is no substitute for registration.

Practical takeaway: before paying, identify the key facts, secure written representations confirming their accuracy and agree what happens if they are wrong. What a buyer needs is not a general assurance of a ‘reliable franchise’, but clear answers: what has been confirmed, as at which date, and what remedies are available if it is untrue.