How to Assess Non-Compete Obligations When Buying a Franchise

Joining a franchise brand may mean more than simply opening a new business. The agreement’s non-compete obligation could also affect a business you already run or your plans to acquire a stake in another company. Before joining a franchise network, do not read this clause merely as a promise not to open an outlet under another brand. This guide examines the scope, economic impact and negotiable limits of non-compete obligations that apply during the agreement.

1. Identify which activities the restriction covers

The first step is to establish exactly what the agreement means by “competitor”, “similar activity” and “indirect involvement”. Does a business count as a competitor only if it sells the same products, or does the definition also cover different business models targeting similar customers? A provision that appears to concern a physical shop may also restrict online sales.

For example, when signing up with a coffee brand, ask separately about your existing bakery, your online shop selling packaged coffee and any minority stake you hold in another business. Each could be treated differently under the agreement’s definitions. A sales representative’s assurance that “your existing business will not be a problem” does not, by itself, narrow broadly worded contractual terms.

Highlight these four points in the draft:

• Activity: Are the prohibited products and services clearly defined?
• Type of involvement: Does the restriction cover share ownership, management or consultancy as well as running a business?
• Geographical scope: Is the obligation limited to a particular area, or does it extend further?
• Duration: When does the restriction begin, and how does it continue if the agreement is extended?

A shifting definition such as “all areas in which the brand operates” needs particular attention. If the brand later introduces new products, your independent business activities could also become contentious. Negotiate for the scope to be tied to specific activities as at the signing date, or for any changes to require a separate written agreement.

2. Distinguish general legal rules from competition law scrutiny

Türkiye has no dedicated franchise law governing franchise agreements. Nor is there a general requirement for a franchise-specific pre-contractual disclosure document or registration in a franchise register. This does not mean that the parties have unlimited freedom to agree contractual terms.

The Turkish Code of Obligations No. 6098 is important to the general contractual framework, while the Turkish Commercial Code No. 6102 is relevant to the commercial relationship. The Industrial Property Law No. 6769 applies to trade mark matters, and the Law on the Protection of Competition No. 4054 must be considered when assessing provisions that restrict competition. The principle of good faith also applies when evaluating the relationship.

One of the main instruments used to assess non-compete obligations is the Turkish Competition Board’s Communiqué No. 2002/2 on Block Exemption for Vertical Agreements, together with the related guidelines. As a general rule, non-compete obligations of indefinite duration or lasting more than five years cannot benefit from the block exemption. However, exceptions linked to matters such as ownership or leasing arrangements for the premises, as well as the characteristics of the franchise relationship, must be assessed separately.

Five years is not an automatic dividing line between validity and invalidity for every agreement. The other conditions for block exemption, market shares, protection of transferred technical and commercial know-how, and the necessity of the restriction also matter. Falling outside the block exemption does not automatically make a clause unlawful; an individual exemption assessment may be needed. Ask your legal adviser to review the agreement’s term and the duration of the non-compete restriction separately.

3. Create explicit exceptions for your existing businesses

Before signing, prepare a short list of your own business activities. Include your shareholdings, management roles, online shops and any other commercial activities you wish to continue. If a company will be the franchisee, check whether the agreement also seeks to impose obligations on its shareholders or affiliated companies.

Family members’ independent activities should not be left unclear either. Whether someone has signed the agreement is a separate question from whether the franchisee has undertaken to ensure that person behaves in a particular way. Wording such as “shall prevent relatives from operating a competing business” could lead to disputes over liability for conduct you cannot control. Clarify who is taking on each obligation and in what capacity.

Set out exceptions for your existing businesses in a signed schedule to the agreement, specifying each business and activity. Naming a company alone, for example, may not mean that all its future activities are permitted. State whether the exception covers existing branches, online sales or planned expansion.

If a new investment requires prior consent, also put in writing the documents required for an application, the response deadline and the assessment criteria. Do not assume that a failure to respond amounts to automatic approval. You can also discuss excluding small shareholdings held purely as passive investments.

4. Factor the economic cost of the restriction into your decision

A non-compete obligation can carry an economic cost even if it does not generate a direct bill. You may have to close an existing business, sell your stake in a company or pass up new investment opportunities. Assess this loss separately from the initial franchise fee; otherwise, you could misjudge the total investment required when comparing two brands.

Prepare three scenarios for your decision: continuing your existing businesses unchanged, scaling back certain activities, and exiting the relevant business altogether. For each scenario, use your own records to calculate lost income, transfer costs and existing commitments that must still be met. Do not treat potential future earnings as guaranteed income.

During the final discussions, ask the franchisor to explain the legitimate need behind the restriction it is seeking. If the aim is to protect confidential business information, discuss whether a narrower obligation would suffice instead of a broad ban on business activities. The aim is not to remove protection for the brand, but to strike a fair balance with your freedom to conduct independent business.

Practical takeaway: Before signing, summarise the prohibited activities, affected people, duration and exceptions for existing businesses on a single page. If that summary does not match the agreement, ask for a written amendment rather than an explanation.