Contract LawFranchise Agreement in Turkish Law

At İstanbul Law Office, we understand the complexities and nuances of franchise agreement in Turkish law. Our expertise in this area allows us to provide comprehensive legal guidance to both franchisors and franchisees. In this guide, we will explore the definition, types, elements, termination, applicable rules, and other crucial aspects of franchise agreements in Turkey. By the end, you will have a solid understanding of the rights and obligations of the parties involved, the potential claims in case of disputes, and the importance of seeking professional legal advice.

1. What is Franchise Agreement?

Under Turkish law, a franchise agreement is a unique contract that combines elements from various other agreements such as sales and purchase agreements, agency agreements, service agreements, and mandate agreements. It is a legally binding agreement between two independent parties, the franchisor and the franchisee. The franchisor grants the franchisee the right to market a product or service using the franchisor’s trademark or trade name, as well as the right to use the franchisor’s operational methods or know-how. In return, the franchisee pays a royalty fee to the franchisor. The franchisor is also obligated to provide know-how or license a trademark, and to support the franchisee in their business operations.

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As İstanbul Law Office, we provide Franchise Agreements as well as other contracts in Istanbul.

  • Contract Drafting: As legal practitioners specializing in contract law, we tailor contracts to meet our clients’ specific needs. We carefully outline the contract’s terms to safeguard our clients’ rights and responsibilities. 
  • Contract Analysis: As attorneys specializing in contracts, we scrutinize contracts that our clients are expected to sign, ensuring that the terms are in our best interest and our rights and duties are protected.
  • Resolving Contractual Conflicts: As Istanbul-based contract law specialists, we offer our clients assistance in settling contract disagreements. We provide the necessary legal aid to uphold our clients’ rights throughout this process.
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  • Initiating Legal Action: As contract law specialists in Istanbul, we support our clients in launching lawsuits to defend our rights. We offer legal assistance throughout this process to ensure our clients’ rights are upheld.

2. Types of Franchising

In general, there are two main types of franchising: business format franchising and product distribution franchising.

  • Business format franchising: In this type of franchising, the franchisee is provided with not only the right to use the franchisor’s trademark and logo but also access to the entire business system, including products, services, trademarks, and know-how. The franchisor offers comprehensive support and guidance to the franchisee, allowing them to operate their business using the franchisor’s established methods and systems.
  • Product distribution franchising: This type of franchising focuses primarily on the distribution of the franchisor’s products. The franchisee is granted the right to sell and distribute the franchisor’s products under the franchisor’s trademark or trade name. Unlike business format franchising, the franchisor does not provide the franchisee with an entire system for running their business.

3. Elements of Franchise Agreements

Franchise agreements in Turkey consist of several key elements that define the relationship between the franchisor and the franchisee:

  1. Independence of the franchisee: The franchisee operates independently from the franchisor, acting on their own behalf and for their own account.
  2. Utilization of know-how: The franchisee is granted access to the franchisor’s know-how, which includes operational methods, marketing strategies, and other proprietary information necessary for running the business.
  3. Uniform appearance: The use of the franchisor’s trademarks and logos must be consistent across all business items, ensuring a uniform appearance and brand recognition.
  4. Payment of royalty fee: The franchisee is obligated to pay a royalty fee to the franchisor for the rights granted under the franchise agreement.
  5. Sales obligations: The franchisee has an obligation to increase sales and promote the franchisor’s products or services.
  6. Permanence: Franchise agreements are typically long-term contracts, establishing a lasting business relationship between the franchisor and the franchisee.

4. Termination of Franchise Agreements

Franchise agreements can be drafted for a definite or indefinite term. If the agreement is for an indefinite term, it can be terminated either by providing a reasonable notice period or upon the occurrence of a just cause. The notice period and just cause requirements may vary based on the specific circumstances of the agreement.

In the absence of specific contractual arrangements, the terminating party must provide an appropriate notice period before the effective date of termination. The general practice for prior termination notice in the case of agency contracts with an indefinite term is three months, but some scholars argue that a franchise agreement should have a notice period of no less than six months.

If one party terminates the agreement without a just cause, the other party may seek compensation for tangible and intangible damages. Tangible damages may include direct damages, loss of profit, and return of products remaining in stock. Intangible damages may include loss of commercial reputation. Additionally, in cases of unjust termination by the franchisor, the franchisee may be entitled to claim compensation for the advance royalty fee paid and portfolio compensation, which refers to the benefits derived by the franchisor from the clientele introduced by the franchisee.

5. Applicable Rules and Regulations

While there is no specific law in Turkey that directly regulates franchise agreements, they are subject to general principles and rules of contract law. Additionally, certain provisions of the Turkish Code of Obligations and the Turkish Commercial Code, which are applicable to agency agreements and distribution agreements, may also apply to franchise agreements.

Franchise agreements involving the use of intellectual property rights and know-how may be subject to Turkish intellectual property laws. Similarly, franchise agreements that contain vertical restraints, such as exclusivity or non-compete clauses, may fall under the scope of Turkish competition laws. These agreements must comply with the provisions of the Law on the Protection of Competition (No. 4054). Depending on the content of the transferred know-how, the franchise agreement may also fall within the scope of Communique No. 2002/2 on Block Exemption for Vertical Agreements or Communique No. 2008/2 on Block Exemption of Technology Transfer Agreements.

Furthermore, depending on the nature of the business activities conducted by the parties, franchise agreements may be subject to other rules and regulations under Turkish law, such as licensing and operational requirements.

6. The Role of Intellectual Property Rights in Franchise Agreements

Intellectual property rights play a crucial role in franchise agreements. The franchisor grants the franchisee the right to use its trademarks, trade names, and other intellectual property rights. This allows the franchisee to operate their business under the established brand identity and benefit from the goodwill associated with the franchisor’s trademarks.

In some cases, the franchise agreement may also involve the transfer of know-how, which includes operational methods, marketing strategies, and other proprietary information. The franchisor shares this valuable knowledge with the franchisee, enabling them to replicate the franchisor’s successful business model.

To protect intellectual property rights, it is essential for franchisors to ensure that every provision of the franchise agreement is compatible with trademark rights. This includes specifying the scope of the franchisee’s right to use the franchisor’s trademarks and maintaining consistent branding throughout the franchise network.

7. Competition Laws and Franchise Agreements

Franchise agreements involve a vertical relationship between the franchisor and the franchisee. They often include vertical restraints such as exclusivity, non-compete clauses, or provisions for information exchange. These restraints can potentially limit competition within a particular product or service market.

Under Article 4 of the Law on the Protection of Competition (No. 4054), agreements that prevent, distort, or restrict competition within a market are considered unlawful and prohibited. Franchise agreements that contain such restraints may be subject to scrutiny by the Competition Authority. However, certain agreements may benefit from a block exemption or an individual exemption.

Communique No. 2002/2 on Block Exemption for Vertical Agreements and Communique No. 2008/2 on Block Exemption of Technology Transfer Agreements provide detailed conditions for block exemptions. Franchise agreements that meet the conditions specified in these communiques may be exempted from the prohibitions under the Law on the Protection of Competition.

It is crucial for both franchisors and franchisees to be aware of the competition laws and ensure that their franchise agreements comply with these regulations. Seeking legal advice on competition law matters can help mitigate potential risks and ensure compliance with relevant laws.

8. Other Legal Requirements for Franchise Agreements

In addition to intellectual property rights and competition laws, franchise agreements may be subject to other legal requirements depending on the nature of the business activities conducted by the parties.

For example, certain types of businesses may require specific licenses or permits to operate legally. Franchisees must ensure that they comply with all applicable laws and regulations in their industry. The franchisor should also provide guidance and support to franchisees in navigating any legal requirements specific to their business operations.

While there is no legal requirement for the registration of franchise agreements in Turkey, it is important for both parties to maintain accurate records and documentation of the agreement. This documentation can serve as evidence in case of disputes or claims arising from the franchise agreement.

Franchise Agreements in Turkey

Lawyer for Franchise Agreements in Turkey

Whether you are drafting a sales contract, enforcing one, or facing a contractual dispute, seeking legal advice is crucial. Our top tier english speaking lawyer team can guide you through the legal complexities of sales contracts or other contracts in Turkey. They can help you understand your rights and obligations under the contract and advise you on the best course of action.

As part of İstanbul Law Office, We are committed to providing our clients with the best legal advice and representation. Our team of experienced lawyers is well-versed in Turkish law, contract law and has a deep understanding of sales contracts. We are here to help you navigate the legal landscape of sales contracts in Turkey.

9. Conclusion

Franchise agreements in Turkish law are complex and multi-faceted contracts that require careful consideration and expert legal guidance. Understanding the rights and obligations of the parties involved, as well as the legal requirements and potential claims, is essential for both franchisors and franchisees.

At İstanbul Law Office, our team of experienced franchise agreement lawyers can provide comprehensive legal advice and assistance tailored to your specific needs. We are committed to ensuring the protection of your intellectual property rights, compliance with competition laws, and navigating any other legal requirements that may arise in the franchise context. Contact us today for a free case evaluation and let us guide you through the intricacies of franchise agreements in Turkish law. Contact us today to schedule a consultation and discuss your legal needs in Istanbul.