Franchise agreement in Europe: structure and key clauses

A European franchise agreement grants a franchisee the right and the obligation to run your franchise system under your brand, in a defined territory, for a defined term and against defined fees. It has to cover the grant and territory, fees, training and support, standards and the operations manual, supply, trade marks and know-how, reporting, non-compete, term, termination, transfer and disputes. The commercial content is yours; the text is drafted by a franchise lawyer in the franchisee's country, because contract law and mandatory rules differ across Europe.

A template copied from another network carries that network's fee logic and its home country's law. This page gives the structure of the agreement and the decisions you need to make before the lawyer starts.

Before drafting: the term sheet

The fastest way to a good agreement is a two- or three-page term sheet agreed internally first. It answers:

• What exactly is licensed: brand, know-how, supply, software, customer base?
• What is the territory and is it exclusive?
• How long is the term, and on what conditions is it renewed?
• What does the franchisee pay, when, and for what? (see fees and royalties)
• What does the franchisor deliver: training, opening support, marketing, field visits?
• How does each side leave?

Every answer should match the financial model and the disclosure document. Disputes with franchisees often start where the sales deck, the disclosure and the agreement say different things.

Clause structure

Several of these items are written into national laws. Sweden's Lag 2006:484 requires pre-contract information on fees, IP, purchase obligations, non-compete, term, termination and dispute resolution. Romania's Ordinance 52/1997 lists mandatory clauses of the contract. Italy's Law 129/2004 requires fixed-term contracts to last long enough to recover the investment and at least three years.

Non-compete and EU competition law

Most franchise agreements in the EU rely on Regulation (EU) 2022/720 to stay clear of the ban on anti-competitive agreements. Its main conditions for the clauses franchisors care about:

• Market share. The block exemption applies where the market shares of the franchisor and the franchisee each stay at or below 30%.
• Non-compete during the term. Exempted for up to five years. According to the Commission's Guidelines (para. 248), a clause that renews tacitly beyond five years can stay covered if the franchisee can effectively renegotiate or end it with reasonable notice and at reasonable cost.
• Post-term non-compete. Up to one year, limited to the premises and land from which the franchisee operated, relating to competing goods or services, and indispensable to protect know-how transferred by the franchisor.
• Resale prices. Recommended and maximum prices are allowed. Fixed or minimum resale prices are a hardcore restriction that takes the whole agreement outside the exemption.

The Commission's Guidelines on vertical restraints give franchising its own section: obligations needed to protect the franchisor's know-how and to keep the common identity and reputation of the network can fall outside the competition ban altogether. The Guidelines name, for example, a ban on using the franchisor's know-how and assistance for the benefit of its competitors, and a non-compete on the goods the franchisee buys where it is needed to keep the network's common identity, for no longer than the franchise agreement itself. The lawyer decides how each clause is framed.

Clauses that cause trouble later

• Royalty base left vague. "Turnover" without a definition invites argument over VAT, discounts, delivery platforms and gift cards.
• No mechanism to update the manual. Your standards will change; the agreement should say how updates become binding.
• Online sales left out. Who sells through the website, marketplaces and delivery apps, and who gets the revenue in the territory?
• Exit without a handover. Customer data, phone numbers, social media accounts and domain names should be listed with a transfer procedure.
• No cure period. The EFF Code of Ethics asks parties to give written notice of a breach and, unless inappropriate, reasonable time to remedy it.

Agreement, disclosure and timing

Signing comes after a waiting period in several countries. France requires the draft contract with the information document at least 20 days before signing, Italy a full copy at least 30 days before, and the Netherlands the draft and information at least four weeks before, with a ban on changing the draft to the franchisee's disadvantage during that time. The full list is in disclosure rules by country.

For a country-wide deal with a partner who will sub-franchise, the structure changes: see master franchise agreement. For Poland, where the contract rests on freedom of contract in the Civil Code, see umowa franczyzowa in Poland.

What we prepare and what the lawyer does

We prepare the term sheet, the fee logic, the description of support and standards, the links to the operations manual and the figures for disclosure. The franchise lawyer in the target country drafts the agreement and the disclosure document and advises on local mandatory rules. Working this way, the lawyer spends time on law and the commercial terms reach the page already agreed.

Next step

Book a paid 30-minute consultation (100 €) to go through your term sheet, or order a written review of an existing agreement against your fee model and manual (from 200 €). The full service is on the franchise development in Europe page.