We live in one of the world fashion capitals, waiting every year for the new Milan fashion week as an opportunity to cover in our blog some of the top current legal issues impacting the fashion sector.
In this post, we would like to cover the topic of franchising agreements, given that we have been asked several times by our clients to clarify what are the main issues that a foreign franchisor needs to consider before entering into the Italian market.
In order to open a franchising store in Italy it is important to know the rules which are mandatory and would be binding regardless of the governing law of the contract i.e. they would apply even if the agreement is governed by the laws of England and Wales. These mandatory rules are that: the contract must have a written form, a minimum 3 years term and it must regulate the renewal and / or the termination condition.
Also as a general principle, franchisors must comply with the disclosure obligations and, at least 30 days before the execution of the contract, provide information in accordance with the Italian franchising law to the franchisee, together with a copy of the contract itself.
For foreign franchisors who enter into contracts with Italian franchisees, there are additional disclosure obligations aimed at protecting franchisees against inadequate information. For example, the foreign franchisor must indicate for each country the number of franchisees currently operating in the system, the number of direct points of sale and, upon request of the new franchisee, must provide detailed information about 20 incumbent franchisees. In addition, in order to establish a franchising network, the franchisor must have tested its business concept on the market. As a general principle, such rules should also apply to an Italian subsidiary of a foreign franchisor as well as to a sub-franchisor under a master franchise relationship.
But, what happens if the contract is subject to a foreign law? Are the rules on disclosure to be observed in any case? Italian franchising law does not specify anything in this respect whilst Italian law provides that “the scope of its application is limited to the cases in which the contract is regulated by Italian law on the grounds of international private rules“. In light of this provision, it apparently seems that the disclosure provisions may be disregarded by submitting the contract to a foreign law. However, given the precautionary purpose of the disclosure obligation to the benefit of the franchisee, it would be definitely advisable that foreign franchisors comply with the Italian disclosure procedures in any case.