A franchise can commit your capital before the first sale. The lease, fit-out, supply terms and royalties may already be binding while questions about territory, support and renewal remain unsettled. For a brand owner, the same agreement determines how the network operates and how the brand is protected when a branch falls short.
RNC offers legal advice and representation to franchisors and franchisees negotiating, renewing or disputing a franchise agreement in Israel. We can review the proposed deal, prepare and negotiate the agreement, align the related documents and handle a dispute over performance or exit. The first task is to identify the business commitment and the terms that need a decision before money is committed.
Turn the business proposal into defined obligations
A franchise agreement usually combines permission to use a brand with an operating system, commercial support and payment obligations. The details depend on the deal. Joining a chain does not, by itself, give the franchisee shares in the franchisor, ownership of the brand or a right to operate every future location.
The agreement needs to say who receives the rights, which outlet or territory is covered, what the franchisor supplies and how the franchisee must operate. A master franchise or development arrangement also needs rules for opening further branches, appointing sub-franchisees and meeting development milestones.
This is a complex legal contract that works alongside the operating manual, lease, guarantees, supply terms and technology arrangements. Read those documents as one package. A support promise in a presentation should become a defined obligation in the signed terms, with the relevant scope, timing and responsibility.
Our related guide to the Franchise Agreement introduces the legal and commercial structure. In a particular transaction, the legal review should produce a clear list of agreed terms, open points and documents needed to complete the deal.
Due diligence: test what the proposed branch will receive
Before signing, identify the contracting entities, the person authorised to grant the franchise and the rights behind the brand. Check the proposed location, the supply arrangements and the support offered. Ask which parts of the opening plan are ready and which still depend on a landlord, authority, supplier or lender.
Financial information should be tied to its source. If a franchisor supplies sales figures or forecasts, establish what they describe: a particular branch, a group of branches, a mature operation or an estimate for a new site. Record the assumptions about rent, staffing, purchasing, delivery costs, royalties and working capital, and review the model with the appropriate financial adviser.
Sections 12 and 39 of the Contracts Law require good faith in negotiations and in performance and exercise of contractual rights. Section 15 addresses misrepresentation, including a failure to disclose facts that should be disclosed under law, practice or the circumstances. A useful disclosure process therefore records the material information provided, the questions asked and the answers given.
For the franchisor, this means preparing a consistent, supportable account of the offer. For the franchisee, it means investigating the assumptions that drive the investment and resolving material gaps. RNC can organise that legal review and turn its findings into proposed conditions, disclosures and contract changes.
Coordinate the premises with the franchise
An approved brand does not settle the conditions for operating from a particular property. Allocate responsibility for site approval, the lease, fit-out, planning and business permissions, and any sector-specific requirements. Set a sequence for the opening steps so that the franchise term and payment obligations do not drift away from the premises timetable.
Check who bears the cost if the site is not approved or the opening is delayed, what happens to deposits and which conditions must be satisfied before the parties become fully committed. The lease should also be reviewed for permitted use, alterations, signage, assignment and the consequences of the franchise ending.
Where the business model includes short-term accommodation, the written agreement discussed in our Airbnb guide sits within a separate property and regulatory context. The same practical discipline applies: identify the actual activity and align the franchise documents with the permissions and property obligations that activity requires.
Define the brand licence and the operating material
The rights clause should identify the trademarks, names, designs, software, manuals and know-how the franchisee may use. Define the permitted products or services, location, channels and duration, together with approval rules for advertising and digital accounts. Check the franchisor’s ownership or authority to license those rights.
In handling franchise agreements, RNC can review how the licence connects with day-to-day operation: who controls a domain, who can access a branch account, how materials may be adapted and what happens to access when personnel or ownership changes. A list of assets and permissions makes those decisions easier to administer.
Trade-secret protection also needs practical controls. Under the Commercial Torts Law, the definition concerns non-public business information whose secrecy gives a competitive advantage and whose owner takes reasonable steps to preserve confidentiality. Identify the confidential material, restrict access appropriately and record how it is supplied, used and returned.
A confidentiality clause and a non-compete clause do different jobs. Draft each around the interest it protects, and review the restrictions under the applicable contract and competition rules. A broad label such as “all information” does not replace the work of identifying the information and the protection needed.
Territory, online sales and competition rules
Territorial protection should answer a commercial question: where can this branch operate and what can the franchisor, other franchisees and online channels do in the same area? Define the area with an appropriate map or description, then address delivery, e-commerce, national accounts, marketplaces and customers who approach from elsewhere.
The review of franchising law in Israel includes competition law as well as the contract. Pricing obligations, purchasing restrictions, customer allocation and limits on sales channels need to be assessed together with the market and the parties’ position. The existence of a franchise block exemption does not establish that every restriction in a proposed deal qualifies.
The franchise block exemption distinguishes, among other things, restrictions on active promotion outside the territory from a prohibition on selling the contract goods to customers outside it. It also contains conditions affecting sourcing, competing parties and market position. A purchasing clause should therefore explain the quality requirements and approval process, rather than treat any supplier restriction as automatically protected.
The September 2026 amendment extends the exemption’s validity to 15 September 2031 and introduces further changes taking effect on 15 September 2027. Those later changes include a franchisee market-share threshold of 20% rather than 30%, and a change from ten to five years in the rule concerning a continuous commitment without an opportunity to leave on reasonable advance notice. These are exemption conditions, not a blanket ban on every longer agreement. A multi-year deal should be reviewed against the rules applying over its life.
Calculate the full cost, not only the royalty rate
The financial schedule should show what is paid, how it is calculated, when it falls due and what is supplied in return. Separate the entry fee from fit-out, equipment, stock, deposits, training, technology and working capital. If a payment is described as non-refundable, examine what happens when an agreed opening condition is not met or the transaction ends before operation starts.
- Initial fee and opening costs: Define: included services, payment stages, opening conditions and any refund terms. Check against the business plan: cash needed before trading and exposure if opening is delayed.
- Royalties: Define: rate or fixed amount, sales definition, tax treatment, reporting and audit. Check against the business plan: effect of returns, discounts, delivery commissions and low-sales periods.
- Marketing and technology: Define: contributions, approved uses, access, reporting and changes. Check against the business plan: recurring costs and the support budgeted for the particular branch.
- Purchasing and upgrades: Define: quality standards, sourcing process, pricing mechanism and change approvals. Check against the business plan: margins, stock levels and future capital expenditure.
For a turnover-based royalty, define the treatment of VAT, cancellations, refunds, discounts, gift cards, third-party platforms and inter-branch transactions. Set the reporting period and payment date, and align the audit right with the records needed to verify the calculation.
For marketing contributions, specify the fund’s permitted uses, the reporting available and the distinction between network advertising and local opening support. For supplier charges, establish whether rebates, commissions or related-party arrangements affect the economics. The resulting schedule should let both sides reproduce the calculation from the same records.
Training and support should be deliverable
The operating manual and training plan should connect to obligations in the agreement. Define the pre-opening training, who attends, who pays and what assistance is available during launch. For ongoing support, specify the subject, delivery method and responsibility, rather than rely only on a phrase such as “support as required.”
The franchisee’s obligations should be equally clear: staffing, opening hours, stock control, service standards, reporting, maintenance and participation in training. Identify the evidence used to assess compliance and the route for raising and correcting a problem.
Changes to the operating system need a workable process. Distinguish routine updates from changes that require major expenditure, new equipment or a different business model. Specify notice, implementation periods, approval rights and any allocation of cost. The parties can then evaluate an update against the agreed process rather than argue about an undefined power to change everything.
Term, renewal and expansion rights
The term should be considered alongside the lease, the planned investment and the finance arrangements. State when it starts, whether there are opening milestones and what happens if the opening is delayed. A development schedule should identify each location or milestone and the consequences of missing it.
Renewal is a separate decision from completion of the original term. Define the notice window, any conditions, the renewal fee, refurbishment obligations and the terms that may change. If the franchisee must sign the franchisor’s then-current agreement, assess what that means for the planned investment and the scope for change.
Our further Franchise Agreement guidance addresses the broader relationship. For negotiation, put the renewal and expansion provisions into a calendar and a decision list: who must act, by when and on what terms. Any preferential right to another outlet should have a defined trigger and response process.
Guarantees, liability and insurance
A personal guarantee can place an owner’s assets behind the company’s obligations. Identify the guaranteed debts, any cap, duration, notice requirements and release mechanism. Check whether amendments, renewal or a transfer of the branch affect that exposure.
Allocate responsibility for product issues, premises, employment, customer claims, data and the use of intellectual property. Review indemnities with their triggers, defence arrangements, settlement authority and any negotiated limits. Match the insurance requirements to the risks and obtain advice on the actual policy terms from the appropriate insurance professional.
The franchise contract’s allocation of responsibility also needs to be understood alongside legal duties toward workers, customers and third parties. Internally agreeing who pays for a claim is a different question from who may owe a duty to the person bringing it. This distinction helps the parties arrange reporting, insurance and control of a defence.
Plan a transfer before an owner wants to leave
A sale of the branch, a transfer of shares or a change of control may trigger different consent provisions. Define what requires approval, what information a buyer must provide and how the approval process works. Include any transfer fee, training requirement and treatment of outstanding obligations.
If the franchisor has a right of first refusal or another purchase right, state how it is triggered, which terms must be matched and the period for a response. Coordinate the process with the lease, financing, licences, guarantees and ownership of branch assets.
The outgoing owner’s release deserves its own attention. A sale agreement between buyer and seller does not, by itself, answer whether the franchisor or landlord has released the seller or guarantor. Put the required consents and releases into the completion steps.
Termination: distinguish a breach from the right to end the deal
The agreement should identify payment, reporting, quality, misuse of the brand and other material obligations, together with notice and cure procedures. Under the Contracts Remedies Law, fundamental breach and non-fundamental breach have different cancellation rules. A sweeping term declaring every breach fundamental is effective only within the statutory reasonableness condition.
For a non-fundamental breach, the statutory route generally requires an opportunity to perform and a reasonable time without performance before cancellation, subject to its fairness provisions. Cancellation is also exercised by notice within the applicable reasonable period. The contract, the facts and the notices already exchanged therefore need to be reviewed together.
When a dispute arises, preserve the agreement, manuals, reports, invoices, inspection records and correspondence. Define the immediate objective: correction of a problem, continued supply, payment, a negotiated separation or a court order. RNC can assess the position, prepare the response and represent the client in negotiations and proceedings.
Make the day after termination workable
The exit schedule should cover signage, digital channels, manuals, confidential material, software access, customer orders and outstanding accounts. Decide what happens to equipment and stock, who carries out de-branding and how completion is documented.
Review any post-term restriction by its scope, duration, territory and protected interest, together with the competition rules. Confidentiality, return of material and a restraint on future activity should not be treated as interchangeable clauses. The practical exit plan should preserve legitimate rights while stating what each party must actually do.
Where the branch continues under another brand or is transferred, coordinate the exit with the lease, staff, suppliers and customer obligations. Final accounts should address royalties, stock, credits, deposits and any agreed releases, rather than assume removal of the sign closes the whole relationship.
Choose a dispute process that fits the relationship
A negotiation or mediation stage can create a structured opportunity to resolve a disagreement. Define who participates, how the stage starts and how it fits with urgent action. Mediation helps the parties seek an agreement; it does not give the mediator power to impose one.
If arbitration is selected, address the scope, appointment process, language, place, applicable rules, costs and any agreed review route. Consider access to interim relief and the steps needed to enforce the result. Court proceedings, arbitration and settlement should be compared for the dispute the parties may face, rather than on an assumption that one is always faster or cheaper.
Use the legal review to make a commercial decision
Before instructing a lawyer who specializes in franchising, gather the draft agreement, schedules, operating manual, disclosure material, proposed location documents and the business plan. State whether you are the franchisor or franchisee, what has already been signed or paid and which date controls the next commitment.
A focused review can separate the points affecting the investment from drafting improvements. The useful output is a negotiation position: the rights needed to operate, the obligations the business can meet, the costs it has accepted and the conditions required for opening, renewal or exit.
At RNC Group, the proposed work can include due diligence, drafting, negotiation, related commercial documents and representation in a franchise dispute. After a conflict check and initial review, the firm can define the work, responsibilities and fee proposal. Bring the documents and the decision you need to make, and discuss the next steps with a qualified attorney.
This article is for general information only and does not constitute legal advice. Laws and their application depend on the facts and jurisdiction and may change. Although we aim to keep this information accurate and current, we do not guarantee that it is complete or up to date. The article may contain omissions or errors. Reading this article does not create an attorney-client relationship with RNC Group. Before making a decision or taking action, seek advice from a qualified lawyer in the relevant jurisdiction.