Commercial concession agreement — the constitution or the "dark horse" of franchising

The commercial concession agreement is the main document establishing the legal relationship between the franchisor and the franchisee. It should spell out the rights and obligations of both parties, the conditions for terminating the contract, guarantees and a complete list of everything that the franchisor must provide for the franchisee to work.

In simple terms, this is the result of everything that the partners discussed when agreeing on cooperation. If there are definitions and points in the DCC that are not clear to you, these are future gaps in your business cooperation.

Before drawing up a contract, the future franchisor needs to clearly develop all the standards and regulations of work and fix everything in the contract. It is important that the document be drawn up very clearly and competently from a legal point of view, and most importantly — excluded any double interpretations, — confirms the project manager for the development of franchising network "Steelpark" Elena Popova.

As for the specific points that the franchisee should pay attention to, it is important here, first of all, to understand:

• whether the terms of the agreement match what you agreed with the franchise owner or manager;
• what will you receive after the conclusion of the contract, what documents and software products of the franchise package or know-how will be transferred to you;
• what obligations does the franchisor assume and whether this volume suits you;
• the amount and procedure for calculating the fee that you will have to pay to the franchisor;
• for what and in what amount penalties can be imposed on you;
• do you have the right to unilaterally withdraw from the contract before the expiration of its validity or not, and if so, on what conditions;
• Who is responsible for registration of DCC and who pays the state fee?

This is not a complete list of essential conditions that you should pay attention to. But, having studied them, you will already be able to decide whether it is worth concluding such an agreement ... If this annoys you — and we just started talking about DCC — do not hesitate to enlist the help of a lawyer, preferably working in this profile.

The average price of such a service in the capital is about 40,000 rubles on average in the market. And, if this waste seems excessive to you, believe me, this is the minimum price of the possible cost of an error when drawing up a contract with ambiguous wording.

“Sometimes when studying contracts, even we are horrified by the conditions and are surprised that someone can sign them. But the saddest thing is that many people sign without even reading it. And after that, they begin to make requests to help them get out of the contract. Unfortunately, it is not always possible to exit without or with minimal losses. In any case, an audit of a franchise agreement is useful, since a specialist can translate the legal language into a simpler one for the client and bring to the surface the meanings hidden between the lines, — says the interlocutor of Buybrand.ru, the partner of the Law Firm "FranchLegal" Evgeniy Lysak.

Why do we need a lawyer to study the DCC, will he be able to recognize the "dummy"?

Frank, raw and unprepared — Yes. The specialist will immediately see an unread document or a downloaded template from the Internet. A lawyer can ask questions of the franchisor and see that he "floats" with answers. Often the appearance in the contract of a large number of clauses "about the responsibility of the parties" clearly tells that the franchisor has many questions with the franchisee partner.

"On the other hand, a lawyer cannot "climb" on the internal kitchen of the company. You need to figure out what is included in the franchise package. “You need to understand that lawyers do not check the “inside”. We cannot be sure whether this or that regulation is in this or that folder. But the "dummy" this will not be in the franchise package. Therefore, a detailed franchise package — this is an indirect sign that the franchisor has done a lot of work (and this is a month and a half of work with documents). This means that there are developments, instructions, regulations, and unique experience here, — says franchising and investment lawyer Linara Kamalova (@LinaraKamalova).

Why do we need Rospatent

The commercial concession agreement is registered with Rospatent. Buybrand asked for statistics, and the department's specialists confirmed the steady growth in the number of registered DCCs — 5845 in 2021 with 3818 in 2020.

Does a registered DCC guarantee that a franchise is reliable? Rather, yes, at least this is a sure marker that the franchisor takes his business seriously and does not act on a whim. Because DCC, first of all, brings the right holder into the legal field and protects him from "toxic franchisees".

"A lot of copies have been broken about this. The civil code contains a license agreement and a commercial concession agreement. In fact, DCC contains a license agreement. And according to judicial practice, if a trademark is registered, but DCC is not registered with Rospatent, then it is recognized as not concluded. And the franchisees calmly leave the management company, collect all the fees, and the court remains on their side. I fundamentally disagree with this. After all, it is the developments of the franchise package, working hypotheses that are the holy grail that needs to be protected. Not a rendered logo, which is a trademark, — emphasizes Linara.

 Another argument in favor of checking DCC registration with Rospatent, — it's a cost-recovery opportunity.

"As for the benefits that registration provides for franchisees, this is the presence in a number of regions of Russia of supporting subsidies for businesses, which are provided only if there is a registration of granting rights with Rospatent", — Eugene explains.

This is not a constitution for you, amendments happen often…

It is very important to understand that all production processes are reflected in the DCC. And the fact that the franchisor makes changes to it is a normal workflow, which just implies that the business is developing.

“From my experience, I can say that at the first stage of packaging a DCC franchise, it can be raw and there are several reasons for that. Firstly, at the stage of packaging and preparation of the franchise business, the current status of the business is fixed. But then there is development, the sale of a franchise, the construction of a management company, the project begins to acquire documents, services, a knowledge base is being formed, etc. And the DCC is starting to improve. And the second reason — sometimes the DCC form is taken as a template. The franchisor does not have the experience and knowledge, follows the path of savings and downloads the available version from the Internet. Of course, only a specialized lawyer and franchising consultant will be able to see this, — says Alena Artyukhova, franchising consultant of EMTG.

“We initially worked on the DCC. Of course, over the years it has undergone various changes. Some wore an applied base, based on our experience, we brought corrections. Or we periodically audit the franchise, so our contract is also audited. Usually we change the contract with the help of lawyers,», — Anastasia Vasilkova, TM Choupette Development Director, confirms.

 Is the franchisor with "raw" DCC absolute evil?

 Of course not. Business — it is a breathing mechanism in which everything is constantly changing. You need to be prepared for this, but it is quite logical to protect yourself.

“We have a case when we drew up such a competent contract for the franchisee that the franchisor refused to purchase a franchise. This does not mean that the franchisor is dishonest. It is quite possible that all the clauses that we have included in the contract will soon appear in its DCC. It's just that in the course of work he realized that he was not ready enough to work with such a savvy franchisee. But how much nerves we saved for failed partners can only be imagined, — notes Alena.

She is the coordinating link between the franchisor and the franchisee, and also attracts specialized specialists who are needed at one stage or another in the selection and verification of the franchise.

“Consulting is very necessary for those who buy a franchise for the first time. They need to be literally led along this path by the hand. People just don't know what to ask, who to turn to and how to do it, — says Linara.

Linara notes that the easiest and legal way to check the activities of the franchisor — is to personally call existing franchisees. Ideally, the list should include an entrepreneur with more than 3 years of experience and a beginner. If contacts are not publicly available, they can be requested from the franchisor. In a couple of weeks you will get the most objective picture. But not everyone is ready to spend time and internal resources on this process. This issue is also resolved on an individual basis with the help of a consultant.

Why are we bringing this topic up now? To make it as clear as possible about the sequence of actions for those who have chosen the path of buying a franchise and formalizing contractual relations. We have the opportunity to communicate with various participants in the franchising market, and our experience shows that not everyone pays attention to the preparation of the DCC, both on the part of the franchisor and the franchisee.

Don't be lazy, be prepared to allocate time and money to protect your interests in the legal field.