BlogContracts & TransactionsLegal ResourcesEverything You Need to Know About the Franchising Agreements in Albania

February 16, 20220

During the 1900s, Henry Ford, an American industrialist and the founder of the Ford Motor Company, started the chain of franchising contracts, the use of which expanded by the end of the 20th century.

Albania has the appropriate economic conditions for the establishment of contractual relations based on a Franchising contract. However, because “franchising” is a new concept in our legal reality, there are few case laws on the application of the Civil Code for such contracts. 

The articles governing Franchise contracts are found in Chapter XX of the Albanian Civil Code (articles 1056-1064). A Franchising contract, according to the Civil Code, is a form of contract that includes the following responsibilities for the parties: 

  • Promotion and development of trade relations
  • Performing common services 
  • Implementation of specific obligations

By such a definition, it is understandable that liabilities are tangible and intangible. The parties have a mutual commitment to morally support each other in difficult times and to strive in order to make the business more successful and prominent.

 

What is a Franchising Contract?

 

Franchising is a contract between legally and financially independent parties, where one party offers the other party the right to market a particular product or service under its own brand, offering a set of intangible rights, models, sketches, profit ideas, providing support and technical assistance against the value paid, which constitutes the obligation of the other contracting party.

This contract enables the cooperation of businesses with each other to manage and develop a brand, as well as allows the growth of one business by exploiting the assets of  another business.

 

What Characteristics Does a Franchising Contract Have?

 

  • It takes at least two parties (natural or legal persons) to enter a Franchising agreement.
  • Compared to other contracts, this contract is intended in itself to bring mutual benefit to both parties.
  • Parties are entitled to financial and legal benefits, in compliance with the contractual terms. 
  • The Franchiser is obliged to instruct the Franchisee on how to market the product, or provide the service.
  • The Franchiser obtains the characteristics of a supplier, by enabling the Franchisee to use its own brand / symbol for the distribution of products / services.
Who Are the Parties in a Franchising Contract?

 

The parties are “Franchiser” and “Franchisee“.

In exchange for an initial payment, a trust fee, or the payment in  two consecutive fees, the Franchiser gives his product / service to another business / person to trade under his own brand or symbol.

The Franchisee is the party chosen by the Franchiser to run the business on his behalf.

 

What Are the Types of Franchising Contract?

 

The European Court of Justice categorized three types of franchising agreements in the “Pronuptia” case.

  • Franchise on Products

The franchisee manufactures products under the Franchiser’s instructions and sells them under the franchiser’s brand.

  • Franchise on Distribution 

The franchisee sells products with the franchiser’s mark / symbol.

  • Franchise on Services

The Franchisee provides a service under the Franchiser’s mark / symbol / trademark, as advised by the latter.

Other types of franchising contracts have developed imposed by the market needs, such as social franchising, third party logistics, real estate based franchising, and event franchising.

Other types of franchising contracts have developed imposed by the market needs, such as social franchising, third party logistics, real estate based franchising, and event franchising.

 

The Franchising agreement is complex because it contains elements of other contracts, such as:

 

  • Sales Contract
  • Joint Venture Contract
  • Supply contract
  • Licensing Agreement regarding industrial property rights
  • Knowledge transfer agreement, etc.
What Happens during the Negotiation Term?

 

Parties set the respective rights and obligations during the negotiation term. They exchange information for the most relevant aspects of the franchising business during this pre-contractual phase.

There are times when a person enters into negotiations with the sole purpose of gaining knowledge about how to establish a successful firm in the market, or to benefit from the Franchiser’s expertise. This situation constitutes negotiations led by bad faith, due to lack of bona fides by one party. If the Franchiser becomes aware of this fact, within  3 years after the   end of the negotiations, he has the right for fair compensation from the Franchisee.

The right for compensation resulting from the breach of confidentiality lasts for 3 years. If the contract is not executed due to the intentional conduct of one party, the other party has the right of a fair compensation.

 

What is the Pre-Contractual Term?

 

Pre-contractual relations include negotiations between the parties regarding the Franchising contract. During these negotiations, which can also be attributed as the negotiation phase, the parties should disclose to one another the status of the commercial affairs related to the franchising contract and especially the franchise obligations.

For the importance and the uncertainty that characterizes this phase, it is crucial for the parties to act in bona fides. Guided by this principle, they can negotiate on:

  • Terms of renewal
  • Compensation
  • Clauses on the protection of territory 
  • Possibility to transfer the right through subcontracting
  • Audit costs

During this phase, each of the parties can consult a professional lawyer, and should insist on obtaining clarifications regarding the specifics that might be problematic in the contract. However, the parties are obliged to keep the confidential information as such, even if the contract is not terminated.

 

What Happens if the Franchiser Violates Pre-Contractual Terms?

 

The third paragraph of Article 1058 of the Civil Code means that, if the Franchiser terminates the negotiations due to his intentional conduct,  the Franchisee is entitled to a fair payment for the loss incurred, as long he keeps confidential the information provided during the negotiations for 3 years after the end of the pre-contractual term.

 

Where can I read more about this contract?

 

In the Civil Code, or by Subscribing to Legit.

Leave a Reply

Your email address will not be published. Required fields are marked *

http://blog.legit.al/wp-content/uploads/2020/12/logit-white-red-icon.png
Tirana, Albania & Pristina, Kosovo
+ 355 69 634 0059
info@legit.al

Follow us:

STAY INFORMED

Subscribe


Legit.al. Calls may be recorded for quality and training purposes.

Copyright © Legit 2020