We advise on all types of franchising arrangements covering the rights and obligations both of principal and operator, including screening the existing agreement as to their compliance with the overriding requirements of Lithuanian law. Among other things, we advise on:
Knowledge & Insights
Overriding local requirements
Franchising agreement is considered as an arrangement between parties when a franchisor (principal) grants certain exceptional rights to the franchisee (operator) certain exception rights (e.g. the right to the company name, right to the copyright, right to a commercial secret). By reason of the Lithuanian Civil Code, the parties to the franchising agreement can be businesses only. The agreement concluded between non-businesses renders the contract ineffective.
The Lithuanian Civil Code sets for the certain imperative requirements as for the form of the franchising agreement – the agreement must be concluded in writing. Failure to abide by this requirement makes the agreement ineffective.
The franchising agreement shall have an effect on third parties only if the agreement was properly registered in the public register, in which the principal is registered. If the principal is incorporated in a foreign country, the franchising agreement must be recorded in the country, in which the operator is registered.
The franchisor (principal) must be paid for entering into franchising agreement. The payment can be a fixed fee or a periodic payment, when certain installments are made from receivables or otherwise agreed between parties.
The parties to the franchise agreement are banned from making arrangements that are prohibited by competition law. The following arrangements are prohibited by reasons of the Lithuanian law:
Provided the other imperative regulations of competition law are not breached, the following restrictions may be included into the franchising agreement that is governed by the Lithuanian laws:
Typically, the franchisor principal shares the risk of expanding in a foreign market and should assume certain liability if claims from customers in the target territory are received. The Lithuanian Civil Code provides for certain cases when the liability of the principal may not be contracted out:
Extension of franchising agreement
Lithuanian Civil Code specifies that the operator who exercised his rights without defaulting is entitled to enter into a new agreement for a new term following the expiration of the terms of the existing franchise agreement.
The principal shall be entitled to refuse from entering into a new franchise agreement for a new term provided that it will not enter into a similar franchise agreement with other third parties for three (3) years term following the expiration of that franchise agreement, which covers the same territory of the expired agreement. In case the principal is willing to grant similar rights to third parties without waiting for expiration of three (3) years term, the principal should pay a reasonable fee to the former operator.
Šulija Partners Law Firm Vilnius, registered office Jogailos street 11, Vilnius, LT-01116, Lithuania, fax +370 52051926, e-mail: info@SulijaPartners.com
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