WHAT IS A FRANCHISE AGREEMENT?

I. INTRODUCTION: THE EMERGENCE AND IMPORTANCE OF THE FRANCHISE SYSTEM

The business world is a dynamic structure constantly evolving and transforming. In the 20th century, industrialization, technological advancements, and the growth of the global economy widened the gap between producers and consumers. As a result, manufacturers began to prefer distributing their products through intermediaries rather than delivering them directly to consumers

This new distribution method has created many advantages for both producers and sellers. At this point, dealership agreements have become an integral part of modern commerce. Today, in Turkey, we see the use of the dealership system in many sectors, from food to automotive, textiles to electronics.

Franchise agreements are important not only commercially but also legally. Because these agreements:

a sui generis (unique) type of contract and does not have a typical legal basis.
It creates a permanent debt relationship between the parties.
Proper preparation is necessary to ensure the security of commercial life.

In this article, what a franchise agreement is, what the rights and obligations of the parties are, how the agreement terminates, and what the consequences of termination are, within the framework of Turkish law. We will also examine the subject in depth in light of Supreme Court decisions and doctrinal opinions.

II. DEFINITION OF THE DEALERSHIP AGREEMENT

1. General Description

A dealership agreement is a continuous contract in which the manufacturer or supplier grants the dealer the right to sell their goods or services in a specific region; the dealer, in turn, undertakes to purchase and sell these goods in their own name and on their own behalf, and to carry out sales activities.

This definition reveals several important elements:

The dealer an independent trader.
The dealer sells the products in their own name and on their own account .
A franchise agreement involves continuous obligations (i.e., it involves a continuous buying and selling relationship, not a one-time transaction).
This constitutes a framework agreement between the parties ; separate sales contracts are made for each item sold.

2. Comparison with Franchising

A dealership agreement is often a franchise agreement . However, there are important differences between the two:

In franchising: The franchisee operates under their own trade name and business name. They market the products independently and build their own customer base.
In franchising: The franchisee uses the franchisor's brand and business concept. Business premises decoration, business model, and customer relations are managed according to the franchisor's instructions.

For example, a mobile phone brand's retailer can display its own signage, while a fast-food chain franchise must use the brand's logo, colors, decor, and products exactly as they are.

3. Comparison with Agency Options

Franchise agreements to agency agreements . However, the fundamental difference is this:

Agents act on behalf of their clients (Turkish Commercial Code, Articles 102 et seq.).
Dealers, on the other hand, work entirely in their own name and on their own account

Therefore, while an agency relationship is similar to a power of attorney, a dealership is a more independent type of commercial activity.

III. LEGAL NATURE AND APPLICABLE PROVISIONS

1. Legal Regulation

Franchise agreements are not directly regulated in Turkish law. Therefore, atypical contracts .

2. Applicable Provisions

General provisions of the Turkish Code of Obligations (especially regarding performance of obligations, termination of contracts, unfair terms, etc.)
If the dealership agreement resembles an agency agreement, Articles 102 et seq. of the Turkish Commercial Code shall apply by analogy.
In case of dispute , Article 2 of the Turkish Civil Code (principle of good faith) shall serve as guidance.

3. Sui Generis Contract Nature

In legal doctrine, franchise agreements be of a mixed nature because they contain elements of a sales contract, a framework contract, and a contract for continuous performance.

IV. FORM OF THE DEALERSHIP AGREEMENT

1. There are no legal formal requirements

The Turkish Code of Obligations does not prescribe any specific form for dealership agreements. Therefore, they can be made orally.

2. The Importance of Written Form

In practice, franchise agreements are always in writing . Because:

It facilitates proof in commercial disputes .
It specifies the rights and obligations of the parties.
It serves as a document for tax and administrative purposes.

3. Notifications Pursuant to Article 18 of the Turkish Commercial Code

For termination or warning notices between merchants to be valid, they must be made via notary public, registered mail, telegram, or registered electronic mail (KEP)

V. RIGHTS AND OBLIGATIONS OF THE PARTIES

A. Manufacturer's Responsibilities

Delivery Obligation
: The manufacturer is obligated to deliver the goods ordered by the distributor on time and in accordance with the contract.
The duty of loyalty
arises from the relationship of trust between the parties. The manufacturer is obliged to support the distributor's activities and facilitate their business.
Support Obligation:
The manufacturer is obligated to provide support to the distributor, such as advertising materials, promotional documents, brochures, and training services.
Exclusive Territory Respect:
If an exclusive territory has been granted to the distributor under the contract, the manufacturer may not enter into agreements with third parties or conduct direct sales within that territory.

B. Dealer's Responsibilities

Obligation to Purchase Goods:
In a dealership agreement, the dealer undertakes to purchase a specific quantity of goods from the manufacturer. This obligation is a primary responsibility of the dealer.
The obligation to increase sales:
The dealer's most important obligation is to operate in order to increase product sales and market share.
The distributor's obligation to protect the manufacturer's interests
must include not selling competing products, maintaining confidentiality, and providing the manufacturer with regular information.
Customer Service Obligation:
The dealer is obligated to provide pre-sales and post-sales customer service. Warranty, maintenance, and repair services may be included within this scope.

VI. TERMINATION OF THE DEALERSHIP AGREEMENT

1. Spontaneous Termination

The time is up,
Death of the dealer or loss of driver's license,
Bankruptcy of one of the parties.

2. By Mutual Agreement of the Parties (Separation)

The parties may terminate the contract at any time by mutual agreement.

3. Termination

a. Ordinary Termination (Termination with Notice):
In indefinite-term contracts, termination can be achieved by giving reasonable prior notice.

b. Exceptional Termination (Immediate Termination for Just Cause)
In the event of a serious breach of obligation by one of the parties, the contract may be terminated immediately.

📌 Supreme Court 19th Civil Chamber, Case No. 2016/5707, Decision No. 2016/12723:
“Extraordinary termination of a dealership agreement may be based on justifiable reasons. However, not every issue constitutes a justifiable reason. Justifiable reasons must be evaluated by the judge, taking into account the principle of good faith and the principle of proportionality.”

VII. CONSEQUENCES OF THE END

Effect on Individual Sales Contracts:
Even if the contract is terminated, sales contracts concluded up to the date of termination remain valid.
Stock Status:
As a rule, the dealer carries the goods in stock at their own risk. However, if agreed upon in the contract, the manufacturer is obliged to take these goods back.
Return of Documents and Materials:
Advertising materials, brochures, and documents provided to the dealer must be returned.
Equalization Fee
: If the manufacturer continues to benefit from the customer base established by the dealer, they are obligated to pay an equalization fee to the dealer.
Non-Compete Clause:
A non-compete clause may be agreed upon after the contract. However, this clause becomes invalid if it excessively restricts the dealer's economic freedom (Turkish Code of Obligations, Articles 444-447 apply by analogy).

VIII. SUPREME COURT DECISIONS AND THEIR IMPACT IN PRACTICE

The 19th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2016/5707 E., 2016/12723 K., emphasized that the just cause for extraordinary termination should be evaluated according to the principle of good faith.
The 11th Civil Chamber of the Supreme Court of Appeals, in its decision numbered 2013/15314 E., 2014/6363 K., stated that failure to adhere to the exclusive territory clause in a dealership agreement constitutes a breach of contract.

IX. CONCLUSION AND EVALUATION

Although franchise agreements are not regulated as typical contracts in Turkish law , they have become an indispensable element of commercial life.

From the manufacturer's perspective, it offers the advantage of reducing marketing costs and reaching a wider customer base.
From the retailer's perspective, it offers the opportunity to sell products from strong brands and generate profit.

However, alongside these advantages, serious disputes arise if the parties fail to fulfill their obligations. Therefore:

Franchise agreements must be in writing.
The rights and obligations of the parties should be regulated in detail
The terms and conditions for termination must be clearly defined.

Franchise agreement, Legal Consultancy, Istanbul Lawyer, Competition Law, Commercial Law, Turkish Commercial Code

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