Franchise agreement and franchise system

A franchise is a package, not one agreement

A franchise agreement usually brings one document to mind. In networks that actually operate, there are five or six, each addressing a different concern. A typical package comprises:

Document	What it addresses	Why it is included
Franchise agreement	licence to the system, brand and know-how, standards, territory and fees	the relationship’s core; without it, there is nothing to license
Operating manual	how the outlet is actually run	it changes over time, so it is a schedule rather than part of the agreement’s text
Lease or sublease	the premises where the business operates	determines who retains the location after separation
Security	deposit, bill of exchange and shareholder’s guarantee	fees and supplies create receivables like any others
Trade mark	registration and licence	you can only license what belongs to you
Joint company documents	memorandum of association and shareholders’ agreement	where you and the franchisee jointly participate in the outlet

Those who prepare only the agreement usually discover the problem at the first separation — when it becomes clear that the lease, rather than the licence, controls the outlet.

Franchising has no dedicated contract type

Neither Slovak nor Czech law recognises the franchise agreement as a named contract type. It is concluded as an innominate agreement.

The parties may also conclude an agreement that is not regulated as a type of contract. However, if the parties fail to define the subject matter of their obligations sufficiently, the agreement is not concluded.

§ 269(2) of the Commercial Code — unofficial translation

Czech law says the same in § 1746(2) of the Civil Code: parties may also conclude an agreement not regulated as a contract type.

The absence of a dedicated contract type does not create a legal vacuum. Franchising is still supplemented by general contract-law rules, the applicable licensing rules and other legislation. The law will not, however, design your particular network model — so we address fees, standards, exclusivity and the partner’s exit in detail.

Non-compete restrictions have limits

Franchisors most often ask how strictly they can prohibit a franchisee from doing the same business. Competition law sets the boundaries: a franchise agreement is a vertical agreement, and block exemption coverage depends, among other things, on the duration of the non-compete obligation. During the agreement, obligations up to 5 years are covered. Stricter rules apply after termination.

…the obligation concerns goods or services competing with the contract goods or services; it is limited to the premises and land from which the buyer operated during the contract period; it is necessary to protect know-how transferred by the supplier to the buyer; its duration is limited to one year after the agreement expires.

Article 5(3) of Commission Regulation (EU) 2022/720 — unofficial translation of the Slovak excerpt

A post-termination non-compete restriction therefore lasts 1 year and must be tied to a specific outlet. Long-term protection concerns know-how rather than a prohibition on doing business: restrictions on its use and disclosure need not be time-limited while it remains unavailable to the public. Sound documentation therefore places the main weight on protecting the manual and confidential information, rather than a clause that will not survive a dispute.

When to contact us

• You are ready to let others use your concept. We build the package from agreement to manual and security, so the second outlet requires only its details to be added.
• Your network runs on an agreement drafted by someone else. We review it and fill the gaps — most often in schedules rather than the main text.
• You are protecting your brand. Only a registered trade mark can be licensed; see trade mark protection.
• You are the franchisee. Before signing, have the security and post-termination commitments assessed through our contract review service.