A franchise or distribution network in France is built on two legal moments: entry, governed by the pre-contractual disclosure duty in Article L. 330-3 of the French Commercial Code, and exit, where notice, the buy-back of stock and the post-term non-compete come into play, the latter strictly limited since the Law of 6 August 2015. A disappointed franchisee almost always attacks the entry. The franchisor tries to lock down the exit. Both sides need to know what French judges actually uphold.
A couple opens a store in Angers in 2022 under the banner of a high-end bedding franchise. The pre-contractual disclosure document (document d’information précontractuelle, or DIP) was handed to them twenty-five days before signing; it contains a projected operating account prepared by the franchisor, forecasting revenue of 900,000 euros in the second year. The store achieves 480,000. After three years, the franchisees want to leave, join a competing network in the same premises, and recover part of their investment. The contract provides for a seven-year term, a two-year non-compete clause and a right of pre-emption for the franchisor over the business.
1. Pre-contractual disclosure: the DIP
Anyone who makes a trade name, trademark or sign available to another person while requiring an exclusive or quasi-exclusive commitment must provide that person, at least twenty days before the contract is signed or any sum is paid, with a document giving truthful information that allows an informed commitment (Article L. 330-3 of the French Commercial Code). The content is set by Article R. 330-1: presentation of the franchisor and its managers, the state of the network with the list of members and those who left during the year, the general and local state of the market, development prospects, the annual accounts for the last two financial years, and the term and conditions of renewal, termination and assignment of the contract.
The rule does not apply to franchising alone: it also covers distribution agreements (concession), trademark licences with exclusivity and, more broadly, any contract combining the provision of a distinctive sign with exclusivity.
2. Nullity: the error, not the mere breach
Failure to hand over the DIP, or an inadequate DIP, is not enough to void the contract. The French Supreme Court (Cour de cassation) requires proof that the breach vitiated the franchisee’s consent: an error on an essential element, or fraud (dol). An error on the profitability of the business can lead to nullity where it goes to the very substance of the franchise agreement, for which the expectation of profit is decisive, and where it results from data supplied by the franchisor.
Forecasts are therefore at the heart of the litigation. The franchisor is not required to provide any. If it does, they must be truthful and based on serious data, and a massive and lasting gap between the figures announced and the results achieved, which cannot be explained by poor management on the franchisee’s part, is a strong indication of error. A gap of nearly 50%, on a local market that the DIP described in generic terms without any analysis of the Angers area, is the kind of case that succeeds, provided the franchisees prove they managed the store normally, which means properly kept accounts, opening hours respected, stock in line with the network’s recommendations, orders placed with the approved suppliers, both partners actually present in the store and local promotions faithful to the brand’s plan, all points the franchisor will contest one document at a time, arguing that the shortfall comes from the location, the operators’ inexperience or the state of the bedding market, and which the judges will examine all the more closely because the gap is so dramatic.
Nullity triggers mutual restitution: the entry fee, royalties, sometimes compensation for losses and investments, less the value of what the franchisee received. The action is time-barred five years after the error is discovered.
3. Exit: term, notice and abrupt termination
A fixed-term contract ends at its term, and non-renewal need not be justified, unless it is abusive. Early termination requires serious misconduct, a termination clause or unilateral termination under the conditions of Article 1226 of the French Civil Code (terminating a contract for non-performance without going to court). A franchisee who leaves the network before the term without cause is exposed to damages corresponding, in principle, to the royalties lost up to the term.
Abrupt termination of an established commercial relationship (Article L. 442-1, II) also applies to networks, but it targets abruptness, meaning insufficient notice, not termination itself.
For retail networks, Article L. 341-1 of the French Commercial Code, introduced by Law No. 2015-990 of 6 August 2015, requires all the contracts binding the operator to the network (franchise, supply, software licence, excluding in particular the commercial lease and the company agreement) to share a common expiry date, and the termination of one to entail the termination of the others, so that a franchisee does not remain bound by an ancillary contract after the main contract has ended.
4. The post-term non-compete: Article L. 341-2
For the same retail networks, any clause which, after the expiry or termination of the contract, restricts the operator’s freedom to carry on its commercial activity is deemed unwritten (réputée non écrite) unless it meets four cumulative conditions: it concerns goods and services competing with those covered by the contract; it is limited to the land and premises from which the operator traded; it is essential to protect the substantial, specific and secret know-how transmitted; and it lasts no longer than one year after the end of the contract (Article L. 341-2).
The EU block exemption Regulation (EU) 2022/720 sets similar conditions for vertical agreements. A two-year clause covering the whole département does not survive this text. In the Angers case, it is deemed unwritten, and the franchisees may join a competing network in the same premises, provided they stop all use of the brand and the know-how.
5. The right of pre-emption and the buy-back of stock
Clauses giving the franchisor a right of pre-emption over the franchisee’s business (fonds de commerce) remain valid in principle, because they do not prohibit the activity but organise its sale. Their wording must nevertheless set a determinable price and a short exercise period. The buy-back of stock and fittings bearing the brand must also be organised. Otherwise, the departing franchisee is left with stock it cannot sell under the banner and that the franchisor refuses to buy back.
The Angers franchisees brought an action for nullity based on error as to profitability. The franchisor offered a settlement: early termination by mutual agreement, mutual waiver of claims, buy-back of the stock at 70% of its value, and release from the non-compete, which it knew would not hold.
6. For franchisors: what to do
An up-to-date DIP, with a local market study actually prepared for each location; cautious forecasts, presented as assumptions and accompanied by their sources, or no forecast at all; a non-compete clause compliant with Article L. 341-2; a common expiry date for all contracts; and a pre-emption clause drafted with a determinable price. It is less spectacular than a five-year non-compete, but it is what holds up in court.
Getting advice, as franchisor or franchisee
The firm advises franchisors, grantors and network members, from drafting the DIP to leaving the network. See our pages on termination of commercial relationships and business law, as well as our article on exclusive international distribution agreements. For an initial discussion: contact.
Further reading: Selling a business (fonds de commerce) in France: creditor objections, price escrow and real timelines.
Frequently asked questions
When must the DIP be provided?
At least twenty days before the contract is signed or before payment of any sum required to obtain the commitment, under Article L. 330-3 of the French Commercial Code.
Does an incomplete DIP make the contract void?
Not automatically. The franchisee must show that the breach vitiated its consent, through error or fraud. An error as to profitability may be enough if it results from data supplied by the franchisor.
Must the franchisor provide a financial forecast?
No. But if it provides one, it must be truthful and based on serious data. A massive and lasting gap with actual results is an indication of error.
Which post-term non-compete clause is valid?
In retail networks, a clause limited to one year, to the operating premises and to competing goods and services, and essential to protect substantial, specific and secret know-how.
What does the common expiry date mean?
Since the Law of 6 August 2015, all contracts binding a retailer to the network must end on the same date, and the termination of one entails the termination of the others (Article L. 341-1).
On the same subject: exclusive international distribution agreements, annual commercial negotiations and significant imbalance and unfair competition and free-riding.