Q&A: offer and sale of franchises in Turkey

Offer and sale of franchises

What is the legal definition of a franchise?

There is no legal definition of franchise under Turkish legislation, due to a lack of specific regulation. Even so, the Turkish Franchising Association defines franchise as:

The franchisee undertaking the right and obligation to use the franchisor’s trade name, service trademark, know-how, business and technical methods, system and other industrial or intellectual property rights in return for a direct or indirect price, with the commercial and technical support it will receive continuously within the term and scope of the written franchise agreement made between the parties.

And according to the Communiqué No. 2002/2:

Franchise agreements contain licences related to know-how and intellectual property rights such as trademarks and signs, which will be used in the distribution of goods or services. The franchisor usually provides commercial and technical assistance to the franchisee during the term of the agreement. Licences and assistances are integral parts of the business method in the franchise package. The franchisee pays the franchisor a franchise fee in return for these services. Franchising allows the franchisor to establish a uniform distribution network for their products with a limited investment.

What laws and government agencies regulate the offer and sale of franchises?

The offer and sale of franchises are not controlled by any law or government agency in Turkey.

Franchising agreements are considered as sui generis agreements and are executed freely by the parties on condition that they are in compliance with the general legal principles and competition rules. Different laws may apply to different subjects (and sectors) related to franchising. In general, the Turkish Code of Obligations No. 6098, the Turkish Commercial Code No. 6102, the Law on the Protection of Competition No. 4054 and the Industrial Property Law No. 6769 apply to offer and sale of franchises.

There are no exemptions to or exclusions from these laws, because a specifically governed franchise law does not exist in Turkey.

What are the principal requirements governing the offer and sale of franchises under the relevant laws?

There are no principal requirements governing the offer and sale of franchises in Turkey.

Must franchisors satisfy any eligibility requirements in order to offer franchises? Are there any related practical issues or guidelines that franchisors should consider before offering franchises?

No. Having said that, the Turkish Franchising Association adopts the European Franchise Federation’s European Code of Ethics for Franchising. By their Principle of Honesty, franchisor must have successfully run its business for a reasonable period of time and at least in one example business; and by their Principle of Clarity, the franchisor should state how long they have been selling their name right with the franchising system in their field of activity, and the last five year’s work experience of the franchisor’s executives. Additionally, the Turkish Franchising Association, in its 2022 Franchising Guide, references American Associated of Franchisees & Dealers’ rules regarding franchisor eligibility. However, these Principles and Guides do not have any force of law.

Are there any legal restrictions or requirements relating to the manner in which a franchisor recruits franchisees or selects its or its franchisees’ suppliers? What practical considerations are relevant when selecting franchisees and suppliers?

No. Having said that, the Turkish Franchising Association adopts the European Franchise Federation’s European Code of Ethics for Franchising and by their Principle of Honesty, a franchisor should select and accept an individual franchisee, upon reasonable investigation, by their possession of the basic skills, education, personal qualities and financial resources sufficient to carry on the franchise business. However, this principle does not have any force of law.

What procedures and formalities for pre-contractual disclosure are required or advised in your jurisdiction? How often must the disclosures be updated?

There are no pre-contractual disclosure requirements related to franchising in Turkey.

In the case of a sub-franchising structure, who must make pre-sale disclosures to sub-franchisees? If the sub-franchisor must provide disclosure, what must be disclosed concerning the franchisor and the contractual or other relationship between the franchisor and the sub-franchisor?

There are no pre-sale disclosure requirements related to sub-franchising in Turkey.

What due diligence should both the franchisor and the franchisee undertake before entering a franchise relationship?

The franchising parties are under no specific due diligence obligations. However, according to the general principles of the Turkish Civil Code, a pre-contractual trusting relationship requires the parties to diligently disclose any information material to the business. All facts material to the franchisee’s decision to enter into the franchising agreement must be disclosed by the franchisor.

What actions may franchisees or any relevant government agencies take in response to a franchisor’s failure to make required disclosures? What legal remedies are available? What penalties may apply?

There are no disclosure requirements related to franchising in Turkey.

Pursuant to the general principles of the Turkish Civil Code and to the culpa in contrahendo principle under the Turkish Code of Obligations, parties are responsible to each other and act trustworthy until the signing, which includes disclosing facts and not providing false information. If acting contrary to these principles shall cause a damage to a party, such as making an investment or expenses, or both, these damages shall be compensated.

Additionally, pursuant to the Turkish Code of Obligations, if one of the parties deliberately deceives the other parties of a contract, this injures their willpower and will result in invalidity of the contract upon the claim by the deceived, within one year of the date of learning about the deceit. Additionally, the deceiving party will be responsible for providing compensation for damages.

The damages are generally calculated based on negative interest and positive interest, that is, based on the difference between the wealth of the franchisee as a result of the injury and the wealth they would dispose of without the damaging event (missing opportunities of executing other franchising agreements). Either way, the franchisee would need to prove the damage is suffered as a result of the franchisor’s failure to provide required or correct information.

In addition to any laws or government agencies that specifically regulate offering and selling franchises, what general principles of law affect the offer and sale of franchises? What industry codes of conduct may affect the offer and sale of franchises?

Pursuant to the Turkish Code of Obligations, for a contractual relationship to be established, the main elements of an agreement – that is, factors that would affect the other party’s decision to enter into the agreement – shall be disclosed and the parties’ wills must be coherent and compatible.

Pursuant to the principle of ‘culpa in contrahendo’, a party’s reliance on the relation arising from contractual negotiation is protected by law, and the concerning party shall have the right to claims of damages related to it.

There are no formal requirements that apply to franchising agreements; either written or oral franchising agreements are binding and valid. However, pursuant to the Industrial Property Law, legal transactions related to trademark and patent must be in written form to be valid, and as franchising agreements mainly include trademark and patent licence clauses, they are executed in written form.

If the franchise agreement includes standardised terms that are used in agreements with other franchisees, the franchisor is obligated to inform the franchisee of such terms. These terms cannot be unilaterally changed by the franchisor, especially to the disadvantage of the franchisee.

Under the Turkish Civil Code, every individual must exercise their rights and fulfil their obligations according to the principles of good faith.

What actions may franchisees take if a franchisor engages in fraudulent or deceptive practices in connection with the offer and sale of franchises?

Pursuant to the Turkish Code of Obligations, if a party has entered into a contractual relationship as a result of fraudulent acts carried out by the other party, they shall not be bound by the contract.