Evaluate risks and critical clauses before signing a real estate franchise.
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Gabriele Rossi
Real estate franchising represents an attractive opportunity for agents and entrepreneurs wishing to start a business under the umbrella of a well-known brand. However, behind the promise of support and visibility often lie complex contractual clauses that can compromise the affiliate’s freedom and sustainability.
This article analyzes the main clauses typically found in real estate franchising agreements — from trademark license conditions to penalties for breach — in light of Italian Law No. 129/2004, offering practical guidance to identify risks and protect oneself from the outset. A valuable resource for those seeking to join a network without becoming trapped by it
Franchising is a contract between two parties, governed by Italian Law No. 129/2004, whereby one company (the franchisor) grants another (the franchisee) access to a set of industrial and intellectual property rights — such as trademarks, know-how, assistance, and consultancy — in exchange for an economic consideration. The goal is to integrate the affiliate into a widespread network for the distribution of goods or services.
In the real estate sector, this model allows for the opening of an agency under the name and commercial format of an established network, offering clear advantages in terms of launch, tools, and support (for further reading, see “How to build a unique but replicable format: franchising”). In return, the franchisee must comply with certain operational standards, use mandated software, platforms, and tools, and pay entry fees and periodic royalties.
Those who decide to open a real estate agency under a franchise often do so for a simple reason: the expectation of entering an already operational circuit, with a recognizable name, a proven system, and ready-to-use operational tools. It is undoubtedly an appealing opportunity for those who want to start their own business without beginning from scratch.
However, franchising is a fully-fledged contract, regulated by a specific law that imposes obligations, constraints, and precise structures. The franchisor and the franchisee remain two distinct legal entities, though interdependent, whose commercial agreement gives rise to a complex relationship inserted into a broader (current or potential) network involving third parties (primarily other franchisees).
Article 3 of Italian Law No. 129/2004 requires that the franchising contract must be drawn up in writing, under penalty of nullity. The agreement must first and foremost include the so-called Franchise Package, which — in its most essential form — includes:
As with any contract, pitfalls can often be hidden between the lines. It is therefore crucial to understand the most common and delicate clauses to assess before signing.
As mentioned, franchising consists of the franchisor granting a series of industrial property rights — trademarks, signage, know-how — to integrate the affiliate into a distributed system. But what does this mean in the practical life of a real estate agency?
It means that the affiliate can use the brand and visual identity of the network, access management software and shared listing platforms, use standardized forms, and benefit from continuous training. In return, they must comply with detailed rules regarding agency management, operating procedures, and customer relations.
All of this comes at a cost. The contract typically requires the payment of a one-off fee (the so-called entry fee) and periodic royalties, which may be fixed or linked to business volume. Additional costs for advertising, software updates, or mandatory training are often added.
These costs must be clearly indicated in the contract along with other clauses largely mandated by the law itself.
Among the essential clauses in real estate franchising, there are those specifying what is granted to the franchisee and under what conditions. Typically, the franchisor provides its brand, coordinated image, know-how, and a proven organizational system. In exchange, the franchisee agrees to comply with strict rules on how to operate, present themselves, and promote services.
Territorial exclusivity clauses are often included. These are very useful to prevent overcrowding of affiliated agencies, which could undermine the franchisee’s investment. The definition of the assigned territory must be precise, as ambiguity could cause overlaps with other affiliates or the franchisor’s direct agencies, leading to unwanted internal competition.
Article 5 of Italian Law No. 129/2004 further requires the inclusion of clauses regarding confidentiality, secrecy, and non-disclosure. The rationale is clear: know-how is an essential element of franchising, and to retain its value and deserve legal protection, it must remain secret. Nevertheless, expressly including a confidentiality clause in the contract is advisable, as it helps define the boundaries of the confidentiality obligation — for example, stating that disclosure of certain information would automatically constitute a breach of contract.
Finally, the contract must establish a duration — set by law at a minimum of three years unless otherwise agreed — and provide for renewal or termination conditions. What happens when the contractual relationship ends? Can the franchisee start over independently?
Upon contract termination, post-contractual clauses come into play. These are obligations that continue to operate even after the affiliate has left the network. Some of the most significant restrictions are found here. While the franchisor must carefully include them, the franchisee must equally be cautious to avoid future business activities being excessively hindered or facing substantial damage claims.
Firstly, non-compete post-contractual clauses are widely used in franchising. In this specific contractual area, jurisprudence is generally more permissive compared to other sectors, considering the unique relationship between franchisee and franchisor. However, complete freedom of agreement does not apply, as European antitrust regulations must be observed.
Indeed, Regulation (EU) No. 330/2010 establishes that a non-compete agreement after contract termination is valid only under specific conditions. In particular, it must be necessary to protect the know-how transferred during the franchise relationship; it must concern goods or services genuinely competing with those covered by the franchise; it must be geographically limited to the area where the affiliate actually operated; and it cannot exceed one year after contract termination (for more insights, see “Il patto di non concorrenza nel franchising: validità, limiti e gestione delle controversie”).
Secondly, obligations of restitution may be provided. If included, the affiliate must return all materials received: signage, manuals, devices, access credentials, and more. Accompanying these restitution obligations, penalties (discussed below) often loom.
The strictest franchisors will seek to prohibit any continued use of the old visual identity, even on business cards.
Additionally, clauses may govern pending negotiations at the time of termination. If the franchisor believes these negotiations stem from the network’s goodwill, they may require the former affiliate to assist in concluding the transaction or even waive commissions arising from such mediation activities.
Finally, even after the end of the relationship, the post-contractual confidentiality obligation persists. Data, strategies, internal documents — all must remain confidential. The affiliate must not disclose information learned during the relationship and must ensure that collaborators are equally bound.
Thus, when a franchising contract ends, it does not necessarily conclude with a mere handshake. The most sensitive topic, however, remains penalty clauses.
Penalty clauses, governed by Article 1382 of the Italian Civil Code, become particularly insidious in real estate franchising. They are designed to protect (mostly) the party that drafts them in case of breach of contractual or post-contractual obligations and can be enforced even years after contract termination.
For instance, a contract might impose a fixed penalty for each day of unauthorized trademark use after termination, or for delays in returning goods, marketing materials, and access credentials. Penalties can also apply — often for significant amounts — if a new competing agency is opened.
These clauses, although powerful, often go unnoticed. It is important to remember that franchising always involves a contractual relationship between entrepreneurs, meaning consumer protection rules (including those on so-called unfair clauses) do not apply.
Why are penalties so favored by those who draft contracts? Because they offer the priceless advantage of pre-determining damages without needing to prove or quantify them. However, a Judge may intervene only if the penalty is manifestly excessive (Article 1384 of the Italian Civil Code) or if the obligation has been partially performed.
Therefore, conducting a careful due diligence during the pre-contractual phase is essential. Even better, one should seek assistance from a professional experienced in franchise agreements, capable of identifying problematic clauses, proposing revisions, and negotiating adjustments.
The advice? Do not merely sign. Instead, negotiate, ask for clarifications, and, above all, carefully review the clauses before signing. Because behind an appealing opportunity, “killer clauses” may be lurking — and knowing them in advance is the best form of protection.
Gabriele Rossi
