Reserving a Franchise: Rules for Deposits Before Signing

When preparing to expand an existing business through a franchise network, a serious candidate may ask you to reserve an opportunity for them temporarily. Taking a payment for that reservation may seem straightforward, but it can quickly lead to misunderstandings: the candidate expects a guaranteed franchise, while you are still assessing whether the arrangement is suitable. Before any money changes hands, put a clear, standalone reservation agreement in place.

1. First, define exactly what you are reserving

A reservation should be more than a promise to give the candidate ‘priority consideration’. Define a specific commitment by your business: for example, that until a stated date you will not sign a franchise agreement with another candidate for a precisely defined location. Also explain whether you may continue to accept other enquiries and hold preliminary discussions during that period.

A temporary reservation is not the same as the right to open a franchise. The agreement should make it clear that the candidate does not yet have permission to use the brand, represent your franchise network or trade using your business concept. Nor does the reservation itself mean that the candidate has received final approval.

Before drafting the document, answer four questions:

• What is being reserved, and how is it described?
• When does the reservation take effect, and when does it expire?
• What does the franchisor agree not to do during that period?
• What steps must both parties complete before the reservation expires?

If you cannot identify a specific benefit for the candidate, consider whether charging for a reservation makes sense at all. For your first expansion, an agreement to continue discussions for a limited period may be a more transparent option.

2. Distinguish between a reservation fee, an advance payment and earnest money

Slovenia has no dedicated franchise law, compulsory franchise register or specifically prescribed statutory franchise disclosure document. The general rules of the Slovenian Obligations Code (OZ) are therefore particularly important for reservation agreements, including the principle of good faith and fair dealing and the rules on negotiations and contract formation.

The absence of specific legislation does not mean you can set the consequences of a payment however you wish. Freedom of contract is limited by mandatory legal provisions and general legal principles. What matters is the substance of the agreement, not merely the document’s title or the payment reference on a bank transfer.

When drafting the agreement, distinguish in particular between the following:

• Advance payment: an amount credited towards a later payment obligation, such as the initial franchise fee. You must also specify what happens to it if no contract is signed.
• Reservation fee: an agreed payment for a specific, time-limited commitment by the franchisor. Clearly describe what the candidate receives in return.
• Earnest money (ara): a legal mechanism with specific consequences under the OZ. Do not use this term simply as a synonym for a deposit.

Earnest money does not, in itself, mean that the candidate can always withdraw by forfeiting it to the other party. Equally, labelling a payment ‘non-refundable’ does not resolve every issue of validity or liability. Have a lawyer review the substance of such provisions before using them.

Pay particular attention to whether the document merely governs further negotiations or already includes a commitment to enter into a future contract. In the latter case, it may constitute a preliminary contract under the OZ, with different consequences from a non-binding expression of interest.

3. Set refund terms according to why the reservation ends

You can prevent most disputes by setting out different scenarios rather than relying on a blanket non-refundable clause. For each scenario, specify the consequences, the refund deadline and any supporting evidence required.

If you reject the candidate, it is sensible to provide in advance for a refund of the reservation payment, except for clearly separate services for which charges have been justifiably agreed. The candidate should not pay for your internal assessment unless that cost was explained and agreed beforehand.

If the candidate withdraws, distinguish between payment for a reservation commitment already fulfilled and an advance payment towards a future franchise. Any retention of money should have a clear contractual basis; do not present it as an automatic statutory right.

If you materially change the offer, for example the scope of the arrangement or the proposed initial franchise fee, provide for the candidate to reject the new terms and receive a refund. A reservation must not become a way to pressure the candidate into accepting a different offer.

If the deadline passes without a decision, specify whether the reservation ends automatically and how the payment will be settled. Any extension should be in writing, with a new expiry date and a clear statement of any additional charge. Where deductions for costs are agreed, also set a limit and specify how those costs must be substantiated.

4. Establish a traceable process before payment

Send the agreement to the candidate first and give them time to review it before requesting payment. The recipient of the transfer should be a clearly identified party to the agreement. Check with your accountant what documentation, accounting entries and tax treatment are appropriate to the actual nature of the payment.

In your internal reservation register, record the candidate, what is being reserved, the start and end dates, the amount and the person responsible. This helps prevent a colleague from inadvertently promising two incompatible reservations for the same territory or location.

When the franchise agreement is signed, confirm in writing whether the payment is credited towards the initial franchise fee and how much remains payable. If the arrangement does not proceed, send a final statement and make the agreed refund. This helps preserve trust even with a candidate who does not join the network.

Practical takeaway: accept money only when you can explain, in one short document, what is being reserved, for how long, the nature of the payment and the consequences of each way the reservation may end.