Franchise Agreements: Rights, Obligations, and Termination Processes - A Comprehensive Guide with Current Judicial Decisions

Franchise systems are among the most important business models that enable brands to grow and expand into new markets in today's commercial world. However, the agreements forming the basis of this system establish long-term and complex legal relationships between the parties. In this article, we will examine the rights and obligations of the parties in franchise relationships, the formal requirements, and the contract termination processes in light of current judicial decisions.

What is a Franchise Agreement and What is its Legal Nature?

A franchise agreement is an unnamed framework agreement that imposes obligations on both parties, where the franchisor allows the franchisee to use its system, integrating the franchisee into its own organization, and the franchisee undertakes to pay a fee. In judicial decisions, a franchise agreement is defined as a "framework (umbrella) agreement" that creates a continuous debt relationship, is not regulated by law (unnamed), and imposes obligations on both parties; where the franchisor grants the franchisee the right to use (license) the intellectual and industrial elements forming its own production, operation, and marketing system, thereby integrating and continuously supporting the franchisee within its business organization; and the franchisee undertakes to use this system in accordance with the franchisor's principles, to sell goods and services on its own behalf and for its own account, and to pay a fee.

Supreme Court 11th Civil Chamber-2025/514-2025/5364 -15.09.2025; Istanbul Regional Court of Justice 44th Civil Chamber-2021/827-2024/698 -04.04.2024

As emphasized in the decisions of the General Assembly of Civil Chambers, in these agreements, the obligation of each party constitutes the consideration for the other, and there is an exchange of performances. The contract, by its nature, has a unique structure encompassing elements of both named and unnamed contracts.

General Assembly of Civil Chambers-2017/60-2019/579 -16.05.2019; Ankara West Civil Court of Commerce-2022/969-2022/1170 -08.12.2022

Formal Requirements and Proof Obligation of a Franchise Agreement

The validity of a franchise agreement, due to its inclusion of trademark and patent license elements, depends on being made in written form pursuant to Article 148 of the Industrial Property Law No. 6769. The written form is critically important for the validity and proof of franchise agreements. Pursuant to Article 148 of the Industrial Property Law No. 6769, franchise agreements containing trademark and patent license elements must be made in written form; otherwise, the agreement is deemed invalid.

Antalya 4th Civil Court of Commerce-2017/752-2019/758 -20.11.2019

In cases where there is no written agreement or where the primary performances cannot be agreed upon, it is not possible for the relationship between the parties to be considered a valid franchise agreement. In such instances, sent contract drafts can only be considered as "prima facie evidence."

Ankara 5th Intellectual and Industrial Property Rights Civil Court-2019/417-2021/303 -14.07.2021

Furthermore, in the absence of a written agreement, the inability to prove unfair competition claims may lead to the dismissal of the case.

Supreme Court 11th Civil Chamber-2025/514-2025/5364 -15.09.2025

What are the Rights and Obligations of the Parties in a Franchise Relationship?

Under a franchise agreement, the parties must act as prudent merchants with honesty and loyalty, based on commercial trust and confidence. The franchise relationship is based on commercial trust and confidence. Due to their status as merchants, the parties have an obligation to act prudently.

Istanbul 1st Intellectual and Industrial Property Rights Civil Court-2016/216-2019/424 -05.11.2019

Franchisor's Obligations

The franchisor is obligated to permit the use of its system, continuously support the franchisee, provide information, and facilitate its activities. Especially during periods that may constitute force majeure, such as a pandemic, the failure to offer alternative training or support models is considered as the franchisor's failure to perform its obligation.

Izmir 3rd Civil Court of Commerce-2020/787-2024/208 -13.03.2024; Istanbul Anatolian 10th Civil Court of Commerce-2024/318-2024/578 -03.10.2024

Franchisee's Obligations

The main contractual obligations of the franchisee are as follows:

• To pay the franchise fee,
• To comply with marketing principles and instructions,
• To participate in training,
• To protect the franchisor's interests,
• Obligations of confidentiality and loyalty, and non-competition (sought together).

Istanbul 1st Civil Court of Commerce-2022/277-2023/706 -17.11.2023; Ankara 2nd Intellectual and Industrial Property Rights Civil Court-2021/143-2023/14 -18.01.2023

Franchise Agreement Termination, Compensation, and Penalty Clause Processes

Termination of a franchise agreement comes into question when one of the parties fails to perform its obligation, forming the basis for claims for damages and penalty clauses. In these agreements, which create a continuous debt relationship, if one of the parties defaults on its obligation, the other party may terminate the agreement and demand compensation for its damages.

Istanbul Regional Court of Justice 44th Civil Chamber-2021/827-2024/698 -04.04.2024

Justified Termination

Justified Termination: While the franchisor's failure to fulfill its support obligation constitutes a justified reason for termination for the franchisee; the franchisee's unauthorized transfer of its workplace also constitutes a breach of contract and allows for a penalty clause claim.

Istanbul 1st Civil Court of Commerce-2022/277-2023/706 -17.11.2023

However, failure to reach sales targets or simple customer complaints may not always be deemed sufficient for justified termination.

Istanbul 1st Intellectual and Industrial Property Rights Civil Court-2016/136-2019/275 -30.05.2019

Reduction of Penalty Clause

Reduction of Penalty Clause: Although the reduction of a penalty clause is generally not possible when the parties are merchants, it is possible for the judge to reduce this clause if it would cause the debtor's economic ruin.

Istanbul Regional Court of Justice 44th Civil Chamber-2023/1397-2025/1752 -18.12.2025

Retroactive Termination

Retroactive Termination: In case of retroactive termination of the contract, the parties return to the pre-contractual situation and reclaim what they have given.

Ankara West Civil Court of Commerce-2022/969-2022/1170 -08.12.2022

Franchise in the Context of Competition Law and Labor Law

Franchise agreement provisions must comply with the vertical agreement rules under Law No. 4054 and the boundaries of the principal employer-subcontractor relationship.

Competition Law

Competition Law: Franchise agreements are considered "vertical agreements" within the scope of Law No. 4054. Provisions such as limiting supply sources or setting resale prices (RPM) may constitute a violation of competition rules and may prevent benefiting from block exemption.

Competition Board-99-39/414-266 -24.08.1999; Competition Board-15-41/682-243 -20.11.2015

Labor Law

Labor Law: A franchise relationship, as a rule, does not create a principal employer-subcontractor relationship. The franchisor and franchisee are two independent commercial enterprises. Therefore, for the franchisor to be held responsible for the damages of the franchisee's employee, special conditions stipulated in the law (ancillary work/work requiring expertise, etc.) must be met.

Supreme Court 10th Civil Chamber-2023/12221-2024/5977 -28.05.2024

Resolution of Franchise Disputes and Arbitration Clause

Franchise agreement disputes can be resolved through arbitration instead of courts, provided that the parties clearly express their intentions. The arbitration clause in the franchise agreement between the parties is valid as long as it is "clear, definite, and unambiguous."

The presence of provisions in the contract regarding interim injunctions or enforcement procedures does not weaken the arbitration intent; on the contrary, it complements it. Accordingly, courts accept the preliminary objection of arbitration and dismiss the case on procedural grounds.

Istanbul 3rd Civil Court of Commerce-2025/502-2025/836 -03.10.2025

Franchise agreements, while powerful tools supporting commercial growth, are legal texts containing technical details due to the license and intellectual property elements they encompass. Procedural errors or incomplete definitions of obligations during the contract stage can lead to high penalty clauses and compensation risks in later stages. To prevent loss of rights and ensure commercial security, professional support in the preparation and termination processes of agreements is critically important. You can contact Çevik Legal for reliable guidance in your franchise disputes and contract processes.

This article is for informational purposes only and does not constitute legal advice.