Buying a franchise: protect your reservation payment

A franchisor offers to reserve an opportunity for you but requires payment before you sign the franchise agreement. This request is not, in itself, evidence of wrongdoing, but it may mean putting your money at risk before you know the final terms of the relationship. When joining a franchise network, distinguish between demonstrating serious interest and making a non-refundable financial commitment: put a written agreement in place first, then transfer the money.

1. Establish what you are actually paying for

The terms ‘reservation payment’, ‘deposit’, ‘initial franchise fee’ and ‘earnest money’ are not interchangeable. Do not rely on the title of the offer or the description on an invoice. What matters is the obligation the payment fulfils and what the parties have agreed.

Before transferring any money, ask for clear answers:

• Is this an advance payment that will be credited in full towards the initial franchise fee?
• Are you buying a separate service, such as a site assessment or introductory training?
• Does the payment secure a time-limited reservation, and what must the provider do or refrain from doing during that period?
• Is the payment intended to constitute earnest money (ara) under Slovenia’s Obligations Code?
• Who will receive the money, and will that same legal entity sign the franchise agreement?

The label given to a payment does not determine its legal effect. If an intermediary receives money on behalf of a foreign franchisor, check their authority to do so and expressly agree who is responsible for any refund. Also ask whether the stated amount includes any applicable VAT, and obtain the appropriate accounting document.

2. Understand Slovenia’s legal framework

Slovenia has no specific franchise legislation, no dedicated compulsory franchise register and no legally prescribed franchise disclosure document with a standard delivery deadline. Nor is the franchise agreement a separately regulated type of contract. This does not mean that pre-contractual payments fall outside the law.

A reservation agreement is governed primarily by the general rules of the Slovenian Obligations Code (Obligacijski zakonik, or OZ): the principle of good faith and fair dealing, and the rules on negotiations, contract formation, performance, liability for damages and repayment of sums received without a legal basis. Depending on the nature of the relationship, other legislation may also apply, including tax, competition and intellectual property rules.

Negotiations do not generally oblige either party to conclude a contract, but bad-faith conduct can give rise to liability for damages. At the same time, a reservation agreement can create obligations in its own right, even if the main agreement has not yet been signed.

Earnest money (ara) has specific consequences under the OZ relating to the formation and performance of a contract. It does not automatically allow the buyer to withdraw simply by forfeiting the payment. Equally, not every payment described as a ‘deposit’ automatically entitles the payer to repayment of twice the amount. Have a lawyer review any such clause before signing.

When buying a franchise for business purposes, do not assume that you have a general consumer right to cancel within 14 days. The European Code of Ethics for Franchising is a self-regulatory standard for the franchise sector, not a substitute for the law or a contractual right to a refund.

3. Link refunds to objective conditions

The weakest wording is a promise that the provider will refund the money ‘at its sole discretion’. A more useful clause precisely defines the trigger, the evidence required, the deadline and the consequence.

If the purchase depends on bank financing, specify a deadline for submitting a complete application, the amount of funding required and how a refusal must be evidenced. Also agree what happens if the bank does not reach a decision in time. Simply saying ‘if the loan is refused’ does not settle whether you must accept an offer on substantially different terms.

You can also agree a right to a refund if the franchisor fails to provide a final draft agreement by an agreed date, or if that draft differs materially from the reservation terms confirmed in writing. List the material terms, such as the initial franchise fee, the duration of the agreement and any required security or guarantees.

For each ground for a refund, specify:

• whether the full amount or only part of it will be refunded;
• what evidence the buyer must provide;
• to whom notice must be sent and how;
• the refund deadline and any permitted deductions.

If the provider retains an amount to cover services already delivered, agree in advance what those services are, how their completion will be confirmed and the maximum deduction. A general reference to ‘administration costs’ leaves too much room for dispute.

4. Limit the reservation period and scope

The reservation must state what it secures for you. A promise that you are the ‘preferred candidate’ is not the same as a commitment by the provider not to sign an agreement with another candidate for the same opportunity while you carry out your checks.

Specify when the reservation starts and ends, with extensions permitted only by written agreement. State whether the payment will be credited towards the initial franchise fee and when. Also check whether the document includes confidentiality obligations, a non-compete clause, a contractual penalty or an obligation to sign the main agreement. These commitments may matter more than the amount paid.

If the provider is based abroad, pay particular attention to the governing law and the jurisdiction for resolving disputes. A contractual right to a refund is less useful if enforcing it would involve disproportionate costs in another country.

5. Make the transfer your final step

Before paying, cross-check the signed agreement, the recipient’s details and the payment instruction. Keep the offer, correspondence, proof of payment and the versions of any annexes referred to in the agreement. Ensure that verbal promises about refunds are included in the signed wording.

Practical takeaway: make a reservation payment only when you can clearly explain what you receive in return, when you are entitled to your money back and who must repay it. If those answers remain unclear, postpone the transfer—not your checks.