How to Draft a Franchise Letter of Intent

When preparing to franchise your existing business, there is an important period of work between shaking hands with a serious candidate and signing the franchise agreement. A letter of intent can clarify who will review what during this period, who will bear which costs and where no commitment has yet been made. The approach that builds trust within the franchising community is to use this document not as an early sales tool, but as a negotiation plan with clearly defined limits.

1. Define the document’s purpose and legal limits

Türkiye has no dedicated legislation governing franchise relationships. Franchise agreements are generally assessed under the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102 where relevant to the commercial relationship, and the Law on the Protection of Competition No. 4054 for competition matters. The Industrial Property Code No. 6769 is also relevant to arrangements involving trade mark use.

There is no mandatory public registration requirement specifically for franchise agreements, nor a standard pre-contractual disclosure document regime. This does not remove general business registration and operating permit requirements. A letter of intent is not a legally required stage in franchising either; it is a tool the parties may choose to organise their negotiations.

The document’s title alone does not determine its legal effect. A document headed ‘letter of intent’ may create binding obligations or even constitute a preliminary contract, depending on its content and the parties’ intentions. The freedom of contract provided by Article 26 of the Turkish Code of Obligations must be considered alongside the limits on validity set out in Article 27. Have a lawyer review the text before presenting it for signature.

2. Separate binding provisions from matters for negotiation

Create two separate sections: provisions the parties agree to comply with immediately, and commercial matters that remain open to negotiation until the final agreement. This helps prevent the candidate from mistaking a working assumption for a firm entitlement or a commitment to open the business.

The section intended to be binding can expressly cover:

• The negotiation period and designated points of contact.
• Each party bearing its own advisory and due diligence costs.
• Use of documents solely for evaluation purposes.
• The scope and expiry of any short-term exclusivity during negotiations.
• The process for returning or deleting documents when negotiations end.

The section open to negotiation may include the proposed business model, target opening period and commercial terms that have not yet been approved. Mark each unresolved item as a draft proposal or assumption.

Also state that, until the final franchise agreement has been entered into, the candidate is not permitted to use the trade mark, make sales or present themselves as an authorised franchisee. This distinction prevents enthusiastic early announcements from creating false expectations within the community.

3. Link the due diligence timetable to specific deliverables

Saying ‘the parties will carry out the necessary reviews’ is not enough to keep the process moving. For each task, identify the person responsible, the document to be delivered, the target date and the completion criteria. Build a timetable that gives the candidate a realistic opportunity to obtain independent legal and financial advice.

For example, the existing business owner can share documents explaining the business model and the limits of the support to be provided. The candidate can supply information demonstrating their funding readiness and a plan identifying who will manage the business. The parties can then compile a single list of outstanding questions and agree a deadline for answering them.

Do not fill the letter of intent with every operational detail. Instead, identify the documents to be shared in an attached schedule, recording their dates and version numbers. Clearly notify the other party when an updated document replaces an earlier version.

Reaching the end of the timetable must not amount to automatic approval. Completion of due diligence should not be interpreted as a guarantee that the franchise relationship will proceed. If information is missing, an extension can be agreed in writing; do not allow uncertainty to continue unaddressed.

4. Draft payment and negotiation exclusivity provisions carefully

If money is to be collected at the letter-of-intent stage, the legal and commercial purpose of the payment must be clear. Do not rely on labels such as ‘deposit’ or ‘reservation fee’. Specify which service the payment covers, the circumstances in which it will be refunded and whether it will be credited against a fee if the final agreement is entered into.

In particular, address each of the following separately: the candidate withdrawing, the franchisor ending negotiations, an unsatisfactory due diligence outcome, and the parties failing to reach agreement within the allotted period. Rather than applying the same deduction in every case, assess the rationale and legal validity of the arrangement. Clarify the documentation requirements and tax treatment with an accountant.

Exclusivity during negotiations is also distinct from a lasting territorial right. If either party is expected not to negotiate with other candidates or brands for a specified period, define the opportunity and period covered. Avoid unnecessarily broad restrictions and have the arrangement reviewed for compliance with competition law as well.

5. Set out from the start how negotiations will close

Specify the letter of intent’s expiry date, the method for extending it and how notice of termination must be given. Separately identify any obligations that will survive the end of negotiations. Assign responsibility for safeguarding documents, settling any outstanding payment matters and correcting any public announcements.

If the final agreement is signed, both documents should explain consistently which provisions of the letter of intent will end and which will continue. Resolve any conflicting promises left in earlier correspondence. Limiting the document’s binding effect does not provide protection for misleading information or negotiations conducted contrary to the principle of good faith.

Practical takeaway: Before signing the letter of intent, answer three questions: What are we committing to today, what are we not yet promising, and how will we close the process if we cannot agree? If the answers are not clear in the text, revise the document.