Would it be legal to issue a franchise agreement on a non-negotiable, “take it or leave it” basis?

Franchise & Licensing

Angola Small Flag Angola

Franchise agreements are usually negotiated between parties as this would involve a certain level of commitment and relationship of trust between the franchisor and the franchisee. In any event if one of the parties, usually the franchisor, does not wish to negotiate its terms but rather impose the contract to the franchisee on a “take it or leave it” basis, there is a risk that some of the clauses of the agreement might be deemed null and void.

According to the general contractual terms’ regime approved by Law 4/03, dated 18 February, when a contract has not been negotiated due to the fact that this was pre-conceived by the other Party and imposed to the other, some of its clauses might be deemed absolutely prohibited (i.e. which cannot, in any circumstance, be used in the contracts): e.g. ruling out any compensation due by law, rule out any liability for non-compliance with the contract, among others, while others are deemed as relatively prohibited (that is, its invalidity is dependent on the business framework to which they apply to, on a case by case basis, in which the correlation of forces between the parties might have relevance): e.g. excessive deadlines imposed on one party, faculty of one of the parties to change its obligations, without due compensation, among others.

This said, subject to reviewing the content of such agreements, we advise that although it would not be illegal to have such kind of unnegotiable approach, this would significantly increase risk of the contracts being null and void or at least some of its clauses, if challenged before Angolan courts.

Canada Small Flag Canada

Yes. Franchisors are free to negotiate, or refuse to negotiate, amendments to their franchise agreements as desired.

Chile Small Flag Chile

In that the true nature of a franchisor-franchisee relationship is not that of a provider-consumer one, it would be legal to issue a franchise agreement on a non-negotiable, “take it or leave it” basis. Local consumer protection laws set forth certain rules applicable to non-negotiable agreements which, in general, provides that certain matters in these “take it or leave it” agreements shall not be left to the unilateral decision and discretion of provider. The foregoing would not be the case in a franchisor-franchisee relationship were a local court would likely regard both parties as being in equal or similar commercial conditions and, as a consequence thereof, franchisee would not require the legal protection consumer laws provides to the weaker party, namely, the consumer. Note, however, that franchisee would still be able to claim that franchisor behaved negligently in imposing a non-negotiable agreement on the former, but the burden of proof on franchisee would likely turn proving his case a cumbersome task.

Azerbaijan Small Flag Azerbaijan

There are no restrictions set forth by the legislation of the Republic of Azerbaijan to issue a franchising agreement in this manner.

Denmark Small Flag Denmark

Yes. The franchisee can decide to enter into a franchise agreement on the terms proposed by the franchisor or refuse the franchisor's offer. However, as explained above, the Danish courts may adjust onerous agreement terms, such as disclaimers. In the event of a dispute arising out of a franchise agreement, the Danish courts will take into account that the franchise agreement is drafted unilaterally by the franchisor and that there may be an imbalance between the parties where the franchisee is considered the weaker party in need of protection. Consequently, extremely onerous or unreasonable clauses of the franchise agreement may be considered non-binding on the parties, interpreted restrictively or found invalid.

Egypt Small Flag Egypt

As indicated above, the franchise agreement is a consensual agreement based on the will and discretion of both parties and nothing legally prohibits non-negotiation, therefore, if the franchisee accepts this from the franchisor, they may conclude the agreement. In this event, the franchisor will remain responsible for the disclosure requirements referred to under the Egyptian Commercial Law indicated under Question No 4 above.

France Small Flag France

A contract that has been issued on a non-negotiable, ‘take-it-or leave-it’ basis will be considered a contract of adhesion. Article 1110 of the Civil Code defines an adhesive contract as one that contains a set of non-negotiable clauses, determined in advance by one of the parties.

Contracts of adhesion are generally legal, however subject to certain interpretations, for example, that they will be interpreted against the drafter. Additionally, any clause that creates a significant imbalance between the rights and obligations of the parties to the contract shall be deemed void (except those clauses dealing with the price or subject matter of the contract).

There is no express prohibition of franchise agreements issued on a non-negotiable basis. However, franchise agreements are generally considered contracts of adhesion, hence why specific safeguards are in place under Article L. 420-2 (abuse of dominant position) and Article L33-03 (mandatory disclosures) to protect the franchisee.

Greece Small Flag Greece

Freedom of contract is a fundamental principle of Greek law. On the basis thereof, it would be legal to issue a franchise agreement on a non-negotiable, “take it or leave it” basis. However, according to the general provisions of the Greek Civil Code (articles 178, 179, 281) and Law 146/1914 on unfair competition, clauses which are abusive or contrary to good faith and business morals or constitute an abusive exploitation of a situation of economic dependence will be not be enforceable.

Lebanon Small Flag Lebanon

Non-negotiable or adherence agreements are recognized and acceptable by Lebanese law as indicated in Article 172, para. 2 of the Code of Obligations and Contracts which states:

“When one of the parties simply adheres to a standard draft which is merely submitted to him and whose content he would not be authorized to discuss, as a matter of law or of fact, the contract is said to be formed by adherence (eg. Transport contracts concluded with a railway company; insurance contract…)”

Accordingly, franchise agreements in Lebanon may be issued on a non-negotiable, “take it or leave it” basis subject to the mandatory clauses in the Lebanese law.

China Small Flag China

This is an issue about the validity of standard clauses of a contract or “take it or leave it” clauses. Where such contract is concluded, the party proposing the standard clauses shall observe the principle of fairness in defining the rights and responsibilities of the parties, and the said party must take reasonable steps to draw the other party's particular attention to those clauses which eliminate or limit the said party’s liabilities, and must, where requested by the other party, explain the effect of the said clauses.

The standard clauses will be invalid where any illegal intentions exist or the standard clauses are not compliant with any mandatory provisions of laws and administrative regulations. where the non-negotiable clause operates to exempt the liabilities of franchisor (such as personal injuries and property losses), or to increase the responsibilities of franchisee, or to exclude important rights enjoyed by franchisee, the said clause shall also be deemed as invalid clauses.

In addition, where (1) the franchisor, through the use of fraudulent or coercive means or by taking advantage of the franchisee's difficulties, leads the franchisee to conclude a contract of standard clauses contrary to its true intentions, (2) the contract was concluded as a result of a serious misunderstanding, or (3) the contract was clearly unfair at the time it was concluded, the franchisee has the right to request that the people's court or an arbitration commission alters or nullifies the said contract.

Mexico Small Flag Mexico

Franchise agreements are not regulated under consumer protection legislation as adhesive agreements, which must comply with certain requirements, formalities and approvals by the relevant authorities in order to be valid. Therefore, legally speaking, it is possible to issue a franchise agreement on a non-negotiable basis. This decision and its possible consequences are more of a business nature.

Peru Small Flag Peru

Yes, it would be legal. The Peruvian Civil Code recognizes this form of contracts in Article N°1390 (Contrato por Adhesion).

Philippines Small Flag Philippines

A non-negotiable franchise agreement may be characterized as a contract of adhesion, which is a contract whereby the participation of the other party is limited to affixing his signature or his “adhesion” to the contract. Under Philippine jurisprudence, a contract of adhesion is not invalid per se because the party adhering to the contract is, in reality, free to reject it entirely. Nevertheless, Philippine courts are not precluded from declaring a contract of adhesion void if the attendant facts and circumstances show that the contract is “obviously too one-sided” [Polotan v. Court of Appeals, G.R. No. 119379, 25 September 1998].

Russia Small Flag Russia

Yes, it will be feasible since contracts of adhesion are legal in Russia. However, franchisee may claim amendment or termination of franchise agreement if it has certain deficiencies or encumbrances against franchisee, which it would not reasonably accept during negotiations and determination of terms and conditions of the contract. Parties must act in good faith and shall not mislead each other when entering into the deal. Fair dealing is always a priority.

New Zealand Small Flag New Zealand

Yes.

United States Small Flag United States

Yes. In fact, it is fairly common for a franchisor to provide prospective franchisees with the form of franchise agreement disclosed in the franchisor’s disclosure document on a “take it or leave it” basis.

Notwithstanding the foregoing, there may be particular characteristics of the prospective franchisee, franchisor and/or franchise sale that make the franchise agreement ripe for negotiation. By way of example, if a franchisor is just first launching its franchise system, and the prospective franchisee would be the first (or one of the first) to sign a franchise agreement, the franchisor may be more open to negotiating the terms of its agreement as a trade-off for establishing its experience and credibility. In addition, if a prospective franchisee is willing to purchase development rights for multiple franchises or acquire the existing franchised business of a struggling and/or poorly operated outlet, it may have greater leverage to negotiate more favourable franchise terms. While not always true, as a rule of thumb, the more established a franchisor and franchise system, the more likely it is that the franchise agreement will only be offered on a “take it or leave it” basis.

Norway Small Flag Norway

The principle of contractual freedom is strongly applicable in Norway. This allows for agreements based on non-negotiable terms and conditions to be entered into, however all agreements must comply with the general clauses in the Contract Act (1918). Based on an overall assessment of the specific agreement an agreement or a specific clause can be deemed invalid under Norwegian law if it is considered 'unreasonable or contrary to good business practice' to uphold the agreement. This also applies if a specific matter changes over time during the contract period, such that upholding the contract eventually ends up being considered unreasonable. This regulation is considered as a safety valve primarily used for contracts between professional parties and consumers, and is not commonly applied on contracts between professional business parties. A franchise agreement would be considered as a contract between professional business parties and this will have an impact on what is considered 'unreasonable or contrary to good business practice'.

We have nearly no examples from case law where franchise agreements have been found invalid on this basis. The main issue to consider is if the franchising concept grants a reasonable and realistic way for the franchisee to actually be able to earn a reasonable living considering the time and effort required to operate the business. If the franchisor makes a solid profit from franchising fees, etc. while the franchisor is not able to earn a living operating within the parameters of the franchising concept this could be deemed 'unreasonable' and thus lead to the agreement being deemed wholly or partly invalid or otherwise modified by the courts.

Other issues known in case law which could lead to a franchising agreement being considered invalid are significant imbalance between the parties when it comes to the agreed length of period of notice of termination. This could also apply if agreements contain clauses allowing the franchisor to fully operate the franchisee's business for the account and risk of the franchisee in the event of the franchisee falling ill for longer periods of time. The assessment of validity of franchise agreements is an overall assessment, but generally the courts are restrictive when it comes to overriding agreements between professional parties.

Italy Small Flag Italy

Generally, franchising agreements are adhesion contracts. This means that they are designed to limit negotiations.

United Kingdom Small Flag United Kingdom

The general laws that govern commercial relationships, including the Unfair Contract Terms Act 1997, apply equally to franchise agreements. Therefore, although it is legal to issue a franchise agreement on a non-negotiable basis, the courts can take this into consideration when determining whether clauses within the franchise agreement are reasonable or unfair. In addition, if any clauses are ambiguous due to poor drafting, the clause will more likely be interpreted in favour of the franchisee if the franchise agreement was issued on a non-negotiable basis.

Updated: October 16, 2019