Kosmidis & Partners, solicitors
Partnering international businesses in Greece
The franchise agreement in Greece
Within the scope of franchising the franchiser generally relinquishes to the franchisee an enterprise with a marked organisational structure of a high technological standard. In the process the franchisee is a truly independent entrepreneur, who uses and realises the franchise package for his independently run commercial undertaking. It usually concerns a successful business concept, which is passed on by the franchiser to the franchisee by means of a licensing agreement. The franchise package is first and foremost an organised sales concept for goods and services. The subject matter of this package is in particular sales and distribution methods, commercial goods or brands, commercial names, trademarks, business designations in words and images, business forms, subsidiary systems, copyrights, technical knowledge and experience (called know-how), and patent rights.
Franchising concept
Franchising primarily comprises the franchisee's integration into the franchiser's distribution system. This inclusion consists of (long-term) technical and organisational support for the franchisee, which is in particular achieved by staff training, equipping business operations and advice on organisational, technical, entrepreneurial and economic matters, with the aim of achieving a great decree of coordination with the franchise concept.
From an economic point of view, franchising concerns a sales and distribution system for products or services to consumers, and consequently a structured and organised advertising and distribution concept, with the intention of profit-orientated sale and distribution on the market of specific products and services through the association of two or more legally independent businesses. The intention is that a tight distribution network, with a specific trading name or commercial brand in which the franchisee exploits the franchiser's experience and is integrated into an existing customer network once his business is established, should be developed in the companies' mutual interest.
Despite integration into the franchiser's distribution system, the franchisee remains an independent trader and acts in its own name, for its own account and at its own risk. This is the authoritative distinction between a franchisee and a commercial representative. The franchisee must make its position clear to prevent the legal appearance of being the franchiser's representative, otherwise the franchisee can be held liable.
The franchise agreement
The companies associated in this way are represented in the market as a single entity on the basis of what is known as a franchise agreement, a long-term contractual cooperation agreement, the object of which is the production and distribution of specific goods or services to consumers. The franchise agreement manifests the assumption of reciprocal obligations and is normally concluded for a consideration.
The franchise agreement is thus a contract geared to mutual economic advantage, with many structures from the marketing sector. Fulfilment of the contract substantially depends upon the franchisee's activities. The latter uses the distinctive features of the products and services and the franchiser's know-how to distribute the contractually agreed products or services. Integration into the franchiser's distribution network obliges the franchisee to follow the franchiser's instructions with regard to distribution methods and the establishment and running of the business operation, to distribute certain types of product determined or approved by the franchiser and finally to actively participate in the franchiser's advertising campaign.
- Long-term commercial cooperation between two economically independent business units,
- Franchisee's integration into the franchiser's distribution system,
- Surrender of use and exploitation of the franchise package to the franchisee and consequently the provision of bundled services of intangibles in the form of industrial or intellectual property,
- A constantly renewable know-how enriched by new, valuable experiences, with the main emphases being in the fields of marketing, merchandising, supply and distribution of products and services, advertising, contacts, training, administrative organisation and management, establishment and funding of the business operation,
- Long-term support and advice for the franchisee,
- The business's operation and management according to the franchise system, the commercial brand and the franchiser's patent, and
- Payment of a consideration by the franchisee
Franchising forms
As a contract typical of the trade, the franchise agreement occurs in various forms, generally as a distribution or service franchise. The distribution franchise concerns the use and realisation of the franchiser's distribution system for the purpose of trading in contractually stipulated products in the franchisee's business premises.
Subcategories of the distribution franchise are on the one hand the manufacturer franchiser's franchise, in which only the franchiser's products may be sold, and the distributing franchiser's franchise, in which the franchiser stipulates the products it chooses and commissions third parties to manufacture the products according to characteristics and specifications stipulated by it. In the latter case it is also customary for the franchiser to purchase the products on the basis of a separate agreement with the manufacturer.
In the case of the service franchise the franchisee utilises the franchiser's distribution system for the purpose of providing contractually stipulated services in its own business premises on the basis of the sales methods specified by the franchiser.
There is furthermore the manufacturer franchise, in which the franchisee manufactures or modifies products according to the franchiser's specifications and then sells these with the franchiser's commercial brand.
What is known as the "mixed franchise", which combines the sale of products and services, is also familiar in Greek law.
Greek law furthermore distinguishes between
- Financing or administration franchise The franchiser finances the franchisee and transfers to the latter administration of an enterprise from the franchise network
- Sub-franchise The franchisee uses a third party's business premises in which the network's products are sold
- Partnership franchise The franchiser has a percentage holding as a shareholder in its franchisee's enterprise
- Combination franchise Two or more franchisers work together in business premises from which each sells its own products or services
- Modification franchise The franchisee brings in a company whose business object was already the same or similar before integration into the franchiser's distribution network
- Multiple franchise The franchiser grants the franchisee the right to open and run businesses in another location
- Plural franchise A franchisee concludes franchise agreements with several franchisers
- Subordinated franchise It is company policy for the franchisee to be subject to control and instructions from the franchiser
- Equal franchise Characterised by equal cooperation between the franchiser and franchisee.
Legal nature of the franchise agreement
As a long-term contractual relationship the franchise agreement is construed as a mixed agreement. The performance typical of the contract is the provision of services and relinquishment of intangibles, even if purchase or sale has been agreed for the purpose of onward selling.
The duration of the contractual relationship which governs cooperation between the parties to the contract under commercial law can be concluded for an unspecified or a specified term.
The franchise agreement is also to be understood as a master agreement, because assumption of specific reciprocal obligations to achieve an overriding economic purpose is stipulated in this agreement. The franchiser's obligation to surrender use of the technical know-how and to support the franchisee is balanced by the franchisee's duty to accept and implement the distribution system's organisational structures and principles. The franchisee is furthermore obliged not to trade in or distribute any competitors' products, and to take all requisite measures to comply with the reciprocal interests. The franchisee is moreover obliged to participate in the franchiser's advertising campaign and finally obliged not to carry out any ancillary activities which breach the ban on competition in the same location.
Implementation of these obligations arising from the franchise agreement often necessitates the conclusion of further (execution) agreements, which can be adapted to the respective needs of the franchise. It is with this in mind, for specific forms of franchise, that in the case of sale of products which the franchiser has manufactured or selected, for example, the franchisee must conclude a separate, parallel contract of sale for purchase of the corresponding products with the franchiser before selling them through the network. The contracts of sale with the franchiser in this regard represent such separate agreements based on the franchise master agreement.
Form of contract
The franchise agreement need not be in writing, it can also be concluded verbally.
Contract content
In addition to the contracting parties' reciprocal obligations, the franchise agreement also clearly defines the products and services to be distributed. Other contract content includes the individual sales and distribution methods, the location's boundaries, the guideline prices, the term of the contractual relationship, possible extension options, grounds for termination and periods of notice, as well as post-contractual obligations.
Obligations of the franchiser and franchisee
a) The franchise agreement is characterised by a special relationship of trust, which creates obligations of reciprocal loyalty as early as the pre-contractual stage. There is already a duty of information on the part of the franchiser with regard to the franchise (depreciation concept) even before conclusion of contract.
b) The franchiser's obligations are basically as follows:
- Surrender of the beneficial rights specifically offered by it
- Transferability and awarding of licences
- Franchisee's incorporation into the distribution system and service organisation
- Training and events
- Principle of equality of the franchisees
- Supply of franchisee with the products or services or other intangibles for integration into the distribution network
- Long-term organisational, technical and financial support and advice on operation of the franchise business
- Equipping and technical installation of the franchise operation
- Maintenance and repair of all operating systems and technical installations
- Location and territory protection, exclusivity agreement as applicable
- Specifications for equipping and operating the franchise business
- Franchise manual
- Advertising
c) Franchisee's obligations:
- Payment of what is known as an "entry fee" for relinquishment of the rights and beneficial rights
- Payment of fees (franchise fees), and a proportion of the profits on a case-by-case basis
- Promotion of sales of the franchiser's products and services through provision of the best possible personal commitment (duty to promote sales according to instructions)
- Implementation of the sales concept and use of the distribution system
- Obligations of loyalty and carrying out of the obligations to buy
- Preservation of the franchiser's industrial property right interests
- Adherence to the franchiser's rights of instruction and supervision, in particular allowing supervision by the franchiser
- Duty of confidentiality and secrecy
- Prohibition of competition
- Duty of notification with regard to operation and the sales system.
The franchisee is furthermore obliged to observe other franchisees' protected territory and not to offer and distribute the products allocated to it in these locations (Art. 4 of regulation 2790/1999). Furthermore it may not solicit any customers outside its own location (Art. 4 of regulation 2790) and must exclusively procure contractually specified products decided by the franchiser. Products manufactured by third parties can, however, be distributed with the franchiser's consent.
According to Greek case law, a contract clause according to which the franchiser reserves the right to keep the franchisee's accounts in order to review the financial data conveyed to it by the franchisee, is not binding, because such a clause resorts to a third contractual party and thus disproportionately obligates the franchisee in an illegal way. The franchisee's obligation to keep a list of customers has also been regarded as a restriction of free trade. In the event, however, of the franchiser being due a contractually agreed share of the profits, the franchisee can be obliged to send the franchiser copies of all the accounts information pertaining to the monthly income.
The franchiser furthermore has the option of obliging the franchisee to take legal action against a third party in the event of a violation by a third party of the rights arising from the franchise agreement relinquished to the franchisee, or even to intervene in legal action against third parties pursued by the franchiser (Art. 3, §2c of Regulation 4087/1988 in conjunction with §44e of the Commission's guidelines).
In the event of breach of the obligations through non-performance or defective performance, the general right of defective performance shall apply. In Greek law the provision of Art. 382 et seq. of the Greek Civil Code apply.
In the individual case a contractual clause can consequently also be qualified as a breach of the competition provisions, with the consequence that the clause can be regarded as prohibited and thus void pursuant to Art. 1 of law 703/1977. Such a case is present in particular if the franchise agreement contains provisions that do not further the object of the agreement and thus restrict competition.
Term
According to Greek case law a term of 5 years has been regarded as appropriate, compared to which a term of 25 years would disproportionately obligate the franchisee, so that a violation of Art. 1 of law 703/77 would be present.
Extension of the long-term contractual relationship's term is basically possible. This requires a corresponding agreement by the parties to the contract, which can also be tacitly concluded. A franchise agreement concluded for a limited term can, therefore, if continued after the agreed period has expired, be qualified as a tacit extension for an unspecified term.
Protection of the franchise system and liability
On the one hand the franchise system is protected against third parties by the provisions of Law 2121/1993, regarding the content of the franchise manual handed over to the franchisee, and by the provisions on unfair competition. Liability in respect of the customer only ensues for the franchisee from the contract. Tortious liability arising from §823 is also possible for the franchiser. In individual cases the provisions on product liability contained in law 2251/1994 can also apply.
Time barring of claims
The franchiser's claim against the franchisee for payment of the consideration is subject to a period of limitation of 20 years pursuant to Art. 249 of the Greek Civil Code.
Termination
The contract is terminated by expiry of the term or termination. Termination as a result of expiry of the term occurs for franchise agreements for a limited term.
Termination can be exercised in the case of both franchise agreements concluded for an unspecified and a specified term. Ordinary termination can be agreed to take the form of termination with or without notice, even in the case of franchise agreements concluded for an unlimited term. In both cases extraordinary termination for good cause is permitted. Good cause is in particular present if a breach of contract occurs.
(Status: April 2010. No responsibility is accepted for any information provided, which is subject to alteration)
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