How to Protect Your Right to a Refund on a Franchise Advance Payment

When discussing joining a franchise network, you may be asked to pay an application fee, a reservation fee or an advance towards the initial franchise fee before signing the main agreement. At this stage, the key question is not just how much you are paying: who keeps the money if the deal does not go ahead? Setting out what the payment covers, when it becomes earned and the refund conditions in a separate written agreement helps you avoid making an investment decision under pressure.

1. Establish the payment’s legal function, not just its name

Do not use “deposit”, “reservation fee” and “advance payment” interchangeably. Two payments with the same label may have different consequences depending on the contract terms. First, ask the franchisor to explain which transaction or service the payment covers.

For example, a service fee for assessing your application is not the same as an advance that will be deducted from the future initial franchise fee. If a payment is requested in return for temporarily keeping a particular outlet location off the market for other applicants, both the reservation period and what you receive in return should be defined separately.

Before paying, obtain written answers to these questions:

• Which company is collecting the payment, and in what capacity?
• Is the payment for a specific service, or an advance towards a future amount due?
• If the main agreement is signed, which fee will it be deducted from?
• Are taxes included in the amount, or will they be added separately?
• What deductions will apply if the deal does not go ahead?

If an assurance that “this payment does not commit you” appears alongside a clause stating that it is “non-refundable under any circumstances”, resolve the contradiction before paying. Make sure the bank transfer reference also matches the description of the payment in the signed document. Simply writing “refundable” in the transfer reference does not mean the other party has agreed to that condition.

2. Do not assume an automatic refund guarantee applies in Türkiye

Türkiye has no separate franchise law specifically governing franchise relationships. Nor is there a general mandatory disclosure document or franchise registration system specifically for franchising. You should therefore not assume that your payment is protected by a public guarantee under a special franchise approval process.

The Turkish Code of Obligations No. 6098 is important when assessing the contract, as is the Turkish Commercial Code No. 6102, depending on the nature of the commercial relationship. The Industrial Property Code No. 6769 may also be relevant to trade mark use, and the Law on the Protection of Competition No. 4054 to restrictions on competition. In an advance payment dispute, particular attention is paid to the purpose of the payment, the parties’ commitments and why the transaction was not completed.

Article 177 of the Turkish Code of Obligations provides that, unless otherwise agreed, money paid when a contract is concluded is treated as evidence that the contract has been made, rather than as a payment securing a right to withdraw. Unless the contract or local custom provides otherwise, it is to be deducted from the principal amount due. This provision does not mean that every payment described as a “deposit” is automatically forfeited.

The withdrawal payment (cayma parası) under Article 178 is different: where such a payment has been agreed, either party may withdraw. If the payer withdraws, they forfeit the payment; if the recipient withdraws, they must repay twice the amount received. However, it would be wrong to apply this outcome to every advance payment. Ask your lawyer to examine the legal arrangement the document actually creates.

Similarly, when buying a franchise for business purposes, do not assume that withdrawal rights specific to consumer transactions will automatically apply. Franchise applicants have no general statutory cooling-off period or unconditional right to withdraw, so negotiate such a right expressly if you want one.

3. Draw up a table linking refunds to specific events

A sentence such as “the payment will be refunded if no agreement is reached” may not be enough. The parties may later give different accounts of why the agreement fell through. Instead, match each possible outcome to a specific rule governing the payment.

Address at least the following situations separately:

• The franchisor rejects the applicant: State whether a full refund will be made and when it will be paid.
• The applicant chooses to withdraw: Make any deduction clear, including its amount or how it will be calculated.
• An agreed precondition is not met: Define the refund mechanism, for example if the proposed premises are not approved.
• The parties cannot agree on the main contract: Specify the deadline for negotiations and what happens to the money afterwards.
• The franchisor withdraws the offer: Set out the refund obligation and responsibility for any additional expenses the franchisor has agreed to cover.

If deductions are to be made, propose a cap based on expenses approved in advance and supported by documentation, rather than an open-ended phrase such as “all costs incurred”. Ask on what grounds payment for services not yet provided would be retained. Whether each deduction is legally valid must also be assessed separately.

Define the event that starts the refund period: is it written notice of rejection, a deadline agreed by the parties, or documented confirmation that a precondition has not been met? Set a clear timeframe; wording such as “once the accounting procedures are complete” leaves the payment date uncertain.

4. Check the payment process and paperwork together

Rather than making a large advance payment in one go, negotiate payments linked to verifiable milestones. At each stage, it should be clear what work must be completed and what amount will become earned. This avoids unnecessarily financing work that has not yet been carried out.

Before transferring money, compare the registered name of the company requesting payment, the party named in the document and the bank account holder. If an intermediary or another company will collect the payment, obtain written confirmation of its authority and of who is responsible for any refund. Do not accept a request to pay into a sales representative’s personal account without an explanation.

Keep the signed advance payment agreement, the dated version of the offer, proof of payment and relevant correspondence together. Ask for the main agreement to include a provision recording previous payments and crediting them against the amounts due. Also check whether the new wording removes any refund right you previously secured.

Practical takeaway: Before sending money, put three things in writing: what the payment covers, the event that triggers a refund and the firm deadline for repayment. If these are unclear, postpone payment.