How to Review a Confidentiality Agreement Before Buying a Franchise

When you begin assessing a franchise brand, you may be asked to sign a confidentiality agreement before financial statements or business information are shared. This is a legitimate means of protection, but it should not prevent you from making an informed investment decision. Trust within the franchising community depends not only on keeping secrets, but also on clearly defining which information may be shared, with whom and for what purpose. Before signing, your aim should be to protect the brand’s trade secrets while preserving your ability to carry out due diligence and seek professional advice.

1. Establish the legal scope of the confidentiality agreement

Turkey has no standalone franchise law specifically governing franchise agreements. Nor is there a general requirement for a franchise-specific pre-contractual disclosure document or registration on a public register. Contractual relationships are governed by general legal provisions, notably the Turkish Code of Obligations No. 6098 and the Turkish Commercial Code No. 6102. Rules on breach of contract and unfair competition may be relevant to confidentiality provisions.

A confidentiality agreement is therefore not a standard franchise application form required by law. It may be a separate agreement used by the parties to govern information sharing, or a set of clauses within another document. Focus on the obligations it creates, rather than its title.

In particular, distinguish confidentiality obligations from any commitment to invest, application fee or obligation not to negotiate with other brands embedded in the wording. These have consequences beyond simply keeping information confidential. Signing a confidentiality agreement should not mean committing to buy a franchise. Ask for the agreement to expressly preserve your freedom to continue or end discussions.

2. Narrow the definition of protected information and its permitted use

A statement such as “all information shared between the parties is confidential” can create uncertainty in practice. The brand’s recipes, operating methods, unpublished financial data and supply terms may warrant protection. However, publicly available shop addresses or a business plan you have developed independently should not be treated in the same way.

Look for the following distinctions in the definition of confidential information:

• Is information that is already public when shared excluded?
• Is there an exception for information you already lawfully knew?
• Is information obtained from third parties without breaching a confidentiality obligation excluded?
• Are materials developed independently, without using the brand’s information, excluded?
• How will the confidential status of information given in oral presentations be documented afterwards?

The permitted purpose should also be clear: assessing the specific franchise investment and carrying out the necessary legal, financial and operational due diligence. This definition does not give you the right to use the information in another business, but it should not leave the legal basis for your investment analysis unclear.

If information flows both ways, ask for mutual protection. Documents relating to your assets, your financing plan or the commercial terms for your proposed location may also be sensitive. Set out separately who the brand may share these with and how it may use them.

3. Preserve access for advisers and finance providers

An investor should not have to assess franchise documents alone. Your lawyer may need to review the agreement, your accountant the financial data, and your finance provider the investment budget. Yet a clause stating that information “must not be shared with any third party” could prevent the assessment you need.

Do not limit the definition of permitted recipients to “employees”. Include people such as your lawyer, accountant, any necessary technical adviser and potential finance providers, as appropriate. Restricting disclosure to those who need to know, and solely for the purpose of assessing the investment, is a balanced approach.

Clarify whether these recipients’ professional duties of confidentiality or separate confidentiality undertakings are sufficient. If fresh written consent is required each time a document is shared, establish who must give that consent and how it should be obtained. Discuss the extent of your liability for your advisers’ actions with your lawyer as well.

There should be an exception for disclosures required by a court order or a request from a competent authority. Any requirement to notify the brand in advance should apply only where this is legally permitted and practically possible. Remember, too, that a confidentiality agreement does not automatically make the sharing of personal data lawful: obligations under Turkey’s Personal Data Protection Law No. 6698 must be assessed separately.

4. Make duration, document return and liability workable

Do not assume that all confidentiality obligations end when discussions stop. The term of the agreement and the duration of the duty to keep information confidential may differ. Ask for a distinction between protecting genuine trade secrets for as long as they remain secret and subjecting all correspondence to the same obligations indefinitely.

If you decide not to invest, how will documents be returned or deleted? There should be workable rules for automatic backups, records retained in your lawyer’s files and documents that must be kept to meet legal obligations. The agreement can also make clear that any copies you are allowed to retain remain subject to confidentiality protection.

It should be clear which conduct gives rise to liability in the event of a breach. Wording that imposes a separate sanction for each file, recipient or day can have unexpected consequences. Have a specialist review how compensation for loss, any agreed payment and other legal claims would interact; do not assume that a sanction is necessarily invalid or necessarily enforceable.

Finally, retain the signed agreement, permissions to share information and a list of the documents supplied. Practical takeaway: Do not accept an agreement as drafted if it protects information but leaves no room for your lawyer, accountant and finance provider to review it. First clarify in writing the scope of the information covered, the permitted recipients and the obligations that will remain after discussions end.