Franchising can be a powerful route for scaling a business internationally, especially across the diverse markets of the European Union. The EU’s single market of 27 countries (450 million consumers) hosts around 8,500 distinct franchise brands, far more than the ~2,500 found in the United States.

This growth comes with a challenge: Europe has no single franchising law, meaning each country imposes its own legal framework. Navigating this patchwork of local laws is crucial for corporate decision-makers and entrepreneurs planning to expand via franchising in Europe.

Understanding Local Legislation in EU Markets

No Unified EU Law – Know the National Rules: Unlike the U.S., which has federal franchise regulations, the EU lacks an overarching franchising statute. Each member state regulates franchising through its national laws (general contract, commercial, and competition laws, or specific franchise statutes). In-depth knowledge of each target country’s regulations is therefore essential for success. The absence of uniform rules means franchisors must adapt to varying definitions, requirements, and restrictions in each jurisdiction.

National Franchise Laws – Key Examples: Many EU countries impose their own franchise-specific legislation or case-law principles, which can significantly impact how you operate

The key we found most useful is our broad network of collaborators who can assist with local counsel in each country early. Laws can differ on defining a franchise, what must be disclosed, relationship terms, and even whether agreements need to be in the local language. Thoroughly researching local legislation (or hiring experts who know it) will help avoid violating local rules that could derail your expansion. It is important to mention that what “works” in one country might be illegal or unenforceable in another – franchising in Europe is not one-size-fits-all.

Drafting Franchise Agreements Tailored to Each Jurisdiction

Avoid the Copy-Paste Trap: When expanding internationally, franchisors cannot simply reuse their domestic franchise contract and assume it will hold up everywhere. Localized drafting is crucial. Franchisors who assume one standard agreement is “equally enforceable everywhere” may face a nasty surprise. Instead, tailor your franchise agreements to reflect each jurisdiction’s legal requirements and business norms.

Key Considerations in Localizing Contracts: When drafting country-specific franchise agreements, the following factors are very important:

    • Mandatory Legal Provisions: Country-specific clauses required by law must be included. For instance, French franchise contracts should explicitly grant trademark usage rights and include know-how transfer (as noted for the Loi Doubin definition). Italian agreements must respect the 3-year minimum term and include explicit territory and royalty details. Failing to include such terms can make the agreement non-compliant or even void in those jurisdictions.
    • Disclosure and Waiting Periods: The contract signing timeline must aligns with local disclosure laws and cooling-off periods. If a jurisdiction requires a 30-day disclosure period (like Italy) or a 20-day cooling-off period (like France and Spain), the timelines must be built acordingly into the contract process.
    • Language and Cultural Fit: While many international franchise contracts use English, it could be necessary to translate the agreement or key parts into the local language. Many franchisees (and the courts) will expect the contract in their native language and governed by local law. A contract not understood by the franchisee or not in the required language could be challenged.
    • Choice of Law & Forum: Specify governing law and dispute forum in each contract. Many franchisors default to their home country’s law for consistency; however, this may not override certain mandatory local laws designed to protect franchisees. Some countries’ franchise laws or public policy will impose local law or jurisdiction for certain matters despite what the contract says.

Ensuring Contract Enforceability Across Borders

Having a contract is one thing; being able to enforce it in a foreign jurisdiction is another. To maximize the likelihood that the franchisor rights (and remedies) can be upheld internationally, the following strategies should be considered:

    • Governing Law vs. Local Law: Under EU rules (the Rome I Regulation), parties generally can choose the law governing their contract. Many franchise agreements pick the franchisor’s home law for consistency. However, this choice cannot override certain mandatory local laws enacted to protect franchisees or business dealings in that country. For example, if French law grants a franchisee certain non-waivable rights, a clause saying the contract is governed solely by U.S. law won’t strip the French franchisee of those protections. To ensure enforceability, either the contract must comply with those local mandatory rules regardless of the chosen law, or explicitly acknowledge them in the contract.
    • Jurisdiction and Venue: Clearly state which courts (or arbitral tribunals) will handle disputes. The Brussels I Regulation in the EU generally upholds exclusive jurisdiction clauses between businesses, and a judgment from one EU country is directly enforceable across all EU member states. This means that if the franchisor obtains a court judgment in France against a franchisee, it can be enforce in Germany or Italy relatively easily via EU mechanisms. Alternatively, some franchisors opt for international arbitration as the dispute forum – arbitration awards can be enforced globally under the New York Convention, and it avoids any home-court advantage for either side.

Compliance with Disclosure and Registration Requirements

One of the most distinctive legal aspects of franchising is the requirement in many jurisdictions that franchisors disclose certain information to prospective franchisees before any agreement is signed or payment made. In the EU, disclosure rules vary by country, so compliance is a moving target. Key points include:

    • Pre-contractual Disclosure Documents: A number of EU countries have laws compelling franchisors to provide a detailed information document to the potential franchisee well in advance. This often includes information about the franchisor’s business, financial status, the franchise network, intellectual property, fees, training and support provided, and other key terms. For example, France’s Loi Doubin requires a disclosure document (DIP) be given at least 20 days before signing the contract Italy similarly mandates a disclosure document 30 days before contract signing by com. Spain imposes at least 20 days between providing a full draft contract and signing, effectively a cooling-off periodfranchising.eu. Belgium, Sweden, Romania and several other countries also enforce pre-contract disclosure by statute. Failing to comply can have serious consequences – the franchisee may be able to void the contract or even claim damages if misled.
    • Registration Requirements: While most EU countries do not require franchisors or franchise offerings to be registered with the government, a few do (or did in the past). For instance, Lithuania requires that the franchise agreement be registered in the Register of Legal Entities where the franchisor’s or franchisee’s business is registered.

Managing Intellectual Property and Brand Control Across Borders

The franchise’s value is inseparable from its brand – trademarks, logos, know-how, and the consistent customer experience that is offered. As one franchising expert noted, franchise systems “stand or fall on the reputation of their brands and the quality and consistency of their product and service offerings”. When expanding into multiple EU countries, protecting the intellectual property (IP) and maintaining brand consistency is paramount and the following are essential:

    • Securing the Trademarks in the envisioned teritory.
    • Clear License of Rights in the Franchise Agreement
    • Maintain Quality Control to protect the brand’s reputation.
    • Protect Know-How and Trade Secrets.
    • Brand Adaptation vs. Consistency: While consistency is crucial, franchisors should also think about local cultural and legal adaptation of the brand where necessary.

Important Aspects that can generate risk

Choosing the wrong franchisee or master franchise partner can lead to conflicts, underperformance, or worse, legal battles. Distant franchisees are harder to monitor – as one expert put it, the “tyranny of distance, time zones, [and] cultural differences” can combine to increase risks and reduce control for the.

The implementation of a rigorous franchisee selection and training process is very important. It is importnat not to rush into partnerships just for quick expansion – it must be ensured that the franchisee understands the franchise system and is financially and operationally capable of executing it. Maintaining regular communication and providing strong ongoing support can preempt many issues. In some cases, using area developers or joint venture models can give a local partner with “skin in the game” to help oversee units in a region, adding an extra layer of control and insight.

A franchisee might misuse the brand (e.g. deviating from standards or using the trademark beyond the scope of their license), or third parties might copy the concept once it becomes popular in a new country.

It is important to actively monitor the franchisees for compliance with brand standards. If a franchisee strays, address it immediately as per the contract (e.g. send notices of default, require them to cure deficiencies within a set time). For outside infringement (e.g. a copycat store or a confusingly similar brand popping up), work with local IP counsel to send cease-and-desist letters and take legal action if needed. Registering the IP (trademarks, copyrights for manuals or designs, etc.) in each jurisdiction before or as it is entered it is critical to being able to enforce the rights there.

Enforcing Post-Termination Obligations: One risk area is when a franchise relationship ends. Will the franchisee actually cease using the brand and return confidential materials? Will they respect the agreed post-term non-compete period? To mitigate post-termination risks, it must be ensured that the contract gives the rights to take swift action – for instance, the right to enter the former franchisee’s premises to remove signage and branded materials, or clauses that allow injunctive relief if the franchisee doesn’t stop operating or violates non-compete terms. In the EU, courts can and do grant injunctions to enforce non-competes or IP rights quickly when necessary. Plan for the worst-case scenario in the contracts so you have the tools to protect the system if a franchisee goes rogue after termination.

Conclusion

Expanding a franchise into multiple countries is a complex endeavor, but with careful legal planning it can be hugely rewarding. With the right preparation and advice from experienced counsel, international legal landscape can be confidently navigated and the business can be scaled with success.

 

More from Lexters