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1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions govern
franchising in your jurisdiction?
Franchising in Romania is primarily governed by Government
Ordinance 52/1997, which was recently modified through the
enactment of Law 179/2019.
1.2 Do they apply to foreign franchisors entering your
jurisdiction or only to domestic franchises?
In Romania, no distinction is made between foreign franchisors
and domestic franchisors when it comes to the applicable legal
requirements. Both must adhere to the same regulations imposed by
national laws.
1.3 Do any special regimes apply in specific sectors?
While there are no special regimes that apply to specific
sectors, there are opportunities for tax relief in specific
industries.
1.4 Which bodies are responsible for enforcing the applicable
laws and regulations? What powers do they have?
In Romania, there are no bodies with specific responsibility for
enforcing the franchise regime. However, the competition and
commercial laws also apply, meaning that the Competition Council
and the national/arbitration courts will have jurisdiction.
1.5 What is the regulator’s general approach in regulating
the franchise sector?
There are no specific approaches to the regulation of the
franchise sector. In Romania, the Constitution and national law
apply to all regulatory matters.
1.6 Are there any trade associations for the franchise sector?
If so, what are the conditions for membership? What are the
commercial implications of not being a member?
Several franchise associations are active in Romania, but
membership is not mandatory. Participation in a franchise
association may offer certain advantages in terms of:
access to enhanced knowledge in the field; and
the opportunity to establish a network of contacts with other
professionals.
The purpose of franchise associations is to support members with
information and increase the visibility of franchising on the
market. However, there is no legal obligation to participate in a
franchise association as either a franchisor or as a franchisee.
Also, there are no commercial implications of not being a
member.
2 Franchise market
2.1 How mature is the franchise sector in your
jurisdiction?
Although Government Ordinance 52/1997 dates back to 1997, it is
only in the last five to 10 years that activity in the Romanian
franchise sector has ramped up. Today, many international brands
are active in Romania and some local brands are starting to expand
internationally.
2.2 In which sectors is franchising most common?
Almost any prosperous business has the potential to evolve into
a franchise model. The food and beverage sector is one of the most
prolific in Romania, although recently franchising has also gained
traction in the education and healthcare sectors.
2.3 Who are the biggest and most successful franchisors in your
jurisdiction? How are they typically structured?
Numerous well-established franchise brands are active in
Romania, including internationally renowned names such as:
McDonald’s;
Burger King;
Domino’s;
Pizza Hut;
KFC;
Taco Bell; and
Subway.
Notably, Romania also welcomes service-oriented franchises, with
industry leaders such as Remax making their mark. This diverse
franchise landscape demonstrates the country’s receptiveness to
a wide range of franchise opportunities, ranging from fast-food
giants to real estate services.
A substantial majority of businesses in this domain tend to
adopt the unit franchise model as their preferred mode of
operation. Within this context, it is customary to see multiple
unit franchises, with entrepreneurs often managing and operating
more than one unit of a franchise. Further, most of these
successful multi-unit entrepreneurs tend to operate more than one
franchise brand, contributing to a robust and dynamic franchise
ecosystem.
3 Franchising models
3.1 Is master franchising or the multi-unit development model
most common in your jurisdiction? Is there a perceptible trend in
one direction or the other?
Although both the master franchising and multi-unit development
models are utilised in Romania, they are primarily used by
international franchises. The most common model for Romanian
franchises is the single-unit franchise approach.
3.2 What other models of franchising are commonly used in your
jurisdiction?
The most common business model is the single-unit franchise
approach.
3.3 What are the potential advantages and disadvantages of
these different models in your jurisdiction?
Single-unit franchise model:
Advantages:
Simplicity: The single-unit franchise model is straightforward
and easy to understand, making it accessible to a wide range of
entrepreneurs.
Local focus: Franchisees can concentrate on a single unit,
allowing for a strong local presence and personalised customer
service.
Lower risk: Operating a single unit carries lower financial
risk compared to the multi-unit and master franchise models.
Disadvantages:
Limited growth: The potential for expansion may be limited
compared to other models, as each franchisee operates a single
unit.
Fewer economies of scale: The unit model may miss out on
certain economies of scale achieved by multi-unit or master
franchise operations.
Dependency: The success of the business relies heavily on the
performance of a single unit, making it vulnerable to local market
fluctuations.
Multi-unit franchise approach:
Advantages:
Faster expansion: Multi-unit franchisees can expand more
rapidly by managing multiple units simultaneously.
Economies of scale: Operating multiple units can lead to cost
savings and increased profitability.
Diversification: Spread across multiple units can help to
mitigate the risks associated with a single-location
operation.
Disadvantages:
Complexity: Managing multiple units can be challenging and can
require a higher level of organisational and managerial skill.
Higher initial investment: Acquiring and operating multiple
units typically involves a greater upfront financial
commitment.
Market saturation risk: Rapid expansion can lead to market
saturation in certain areas.
Master franchise approach:
Advantages:
Rapid expansion: Master franchisees have the potential to
develop an entire region or country quickly.
Revenue streams: Master franchisees can generate revenue from
sub-franchise fees and ongoing royalties.
Local expertise: Master franchisees often possess deep
knowledge of the local market, which can be advantageous.
Disadvantages:
Complexity: Managing multiple sub-franchisees and adhering to
brand standards can be complex.
High responsibility: Master franchisees bear substantial
responsibility for brand growth and management in their designated
territory.
Initial investment: Acquiring master franchise rights can
involve a significant initial investment.
3.4 What specific considerations should be borne in mind in the
case of cross-border franchising into your jurisdiction?
The most important aspects that should be borne in mind are as
follows:
Understand the Romanian franchise laws and ensure legal
compliance both when concluding agreements and in daily business
operations.
As most IP rights are territorial, protection should be ensured
in Romania.
Accurately translate documents into Romanian.
Establish clear dispute resolution mechanisms in the franchise
agreement, including jurisdiction and choice of law clauses, to
ensure that knowhow is properly protected in case of
infringement.
4 Definitions and scope of application
4.1 How is ‘franchising’ defined in your
jurisdiction?
Government Ordinance 52/1997 defines a ‘franchise’ as
follows:
Franchise represents a system of marketing products and/or
services and/or technologies based on continuous collaboration
between legally and financially independent individuals or
entities. In this arrangement, one person, known as the franchisor,
grants another person, known as the franchisee, the right and
imposes the obligation to operate a business in accordance with the
franchisor’s concept. This right authorizes and obliges the
franchisee, in exchange for a direct or indirect financial
contribution, to use product and/or service trademarks, other
protected intellectual or industrial property rights, know-how,
copyrights, as well as trademarks, benefiting from ongoing
commercial and/or technical assistance from the franchisor, within
the framework and for the duration of the franchise agreement
concluded between the parties for this purpose.
4.2 What are the key requirements that apply to
franchising?
Before expanding through franchising, a franchisor should
have:
proven the business concept by successfully operating it for at
least one year; and
registered its IP rights.
Before selling a franchise, a franchisor must also meet the
pre-contractual disclosure requirements. If the franchisor fails to
comply with these obligations, the franchisee:
may request the courts to determine that the contract is null
and void; and
may be entitled to claim related damages.
4.3 Is registration of the franchise agreement, a trademark
licence or other documentation required?
Registration of the franchise is not required, but the right to
use or own a registered IP right is required under Government
Ordinance 52/1997
4.4 Are mandatory contract terms imposed?
Yes, the law sets out some mandatory terms as follows:
Clearly define the obligations and responsibilities of each
party, as well as any other collaboration clauses;
Include:
the object of the agreement;
the rights and obligations of the parties;
financial conditions;
the duration of the agreement; and
the conditions for amendment, extension and termination;
and
A non-compete obligation; a clause stating that the franchisee
cannot engage, either directly or indirectly, in any activity that
is similar to the subject of the franchise agreement.
4.5 What specific activities (if any) are prohibited under the
franchising laws and regulations? What are the potential
consequences of breach?
No such activities are expressly prohibited by law.
5 Initial steps
5.1 Are there any restrictions on foreign franchisors entering
your jurisdiction?
No.
5.2 Are franchisors required to establish a local presence? If
so, what is the most common corporate structure adopted by foreign
franchisors entering your jurisdiction?
Franchisors are not obliged to establish a presence in the local
area. However, if foreign franchisors do decide to establish a
corporate entity in Romania, this typically takes the form of a
limited liability company.
5.3 What requirements or restrictions apply with regard to the
selection and recruitment of franchisees?
In Romania, no requirements or restrictions apply in relation to
the selection of franchisees.
5.4 Are franchisees subject to any legal obligations when
purchasing a franchise?
No.
6 Disclosure and due diligence
6.1 What pre-contractual disclosure requirements apply to
franchisors in your jurisdiction?
The pre-contractual disclosure requirements are a legal
obligation of the franchisor. Before executing a franchise
agreement, the franchisor must inform the franchisee of:
the history and experience of the franchisor;
details of the management’s identity;
the litigation history of the franchisor and its
management;
the initial investment required to operate the franchise;
the mutual obligations of the parties;
the franchisor’s financial results from the previous year;
and
information on the pilot unit.
6.2 What formal, substantive and procedural requirements apply
with regard to the disclosure document in your jurisdiction?
The information must be disclosed to the franchisee in the form
of a disclosure letter, drafted in the language of the franchise
agreement.
6.3 What pre-contractual disclosure requirements apply to
franchisees in your jurisdiction?
There are no disclosure requirements that apply to franchisees.
However, Government Ordinance 52/1997 and the Civil Code set forth
an obligation to deal in good faith in business relations in
general, as well as in a franchise relationship in particular.
6.4 What are the consequences of any breach of the
pre-contractual disclosure requirements?
If a franchisor fails to accurately disclose the information
required by law, the franchisee may file a lawsuit seeking damages.
Additionally, a franchisee which can prove that its consent has
been vitiated may initiate legal proceedings to request the
invalidation/annulment of the franchise agreement. If the agreement
is invalidated, the franchisee may seek reimbursement of the entry
fee and the royalties paid, among other things.
6.5 What other due diligence should the parties undertake
before entering into a franchise agreement?
From the franchisee’s perspective, the most important issue
is to verify the information disclosed by the franchisor,
especially in relation to:
trademarks;
financial results; and
litigation history.
These issues can all be validated from public sources.
On the other hand, the franchisor should check whether the
franchisee:
is a good fit for the business; and
has the financial and personal capabilities and means to open
and operate the business.
6.6 Are there any restrictions imposed upon franchise brokers
in your jurisdiction?
No.
6.7 Are franchisors permitted to provide pre-sale information
on operational performance (eg, financial performance
representations or earnings claims), or are such statements
regulated or banned?
As mentioned in question 6.1, the franchisor is obliged by law
to disclose:
its financial results from the previous year; and
the initial investment required to operate the franchise.
7 Franchise agreement
7.1 What formal, substantive and procedural requirements apply
with regard to the franchise agreement in your jurisdiction? Are
there any mandatory terms? What terms are typically included in the
agreement?
The ongoing relationship between the franchisor and franchisee
is governed by:
Law 179/2019;
Government Ordinance 52/1997; and
the Civil Code and related legislation.
The franchise agreement must:
clearly define the obligations and responsibilities of each
party, as well as any other collaboration clauses;
include:
the subject of the agreement;
the rights and obligations of the parties;
the financial conditions;
the duration of the agreement; and
conditions for amendment, extension and termination; and
a non-compete obligation; a clause stating that the franchisee
cannot engage, either directly or indirectly, in any activity that
is similar to the subject of the franchise agreement.
7.2 Do any specific requirements apply regarding the governing
law or jurisdiction of the franchise agreement?
It is not mandatory for the franchise agreement to be governed
by local law; instead, it can be governed by the law chosen by the
parties. However, if the parties choose a law other than Romanian
law, a court jurisdiction other than the Romanian state courts
should be also chosen.
7.3 Does the franchisor have any mandatory rights and
obligations under the franchise agreement?
Romanian law requires only that the franchise agreement specify
the parties’ rights and obligations. The parties are free to
negotiate the extent of such rights and obligations. Common rights
of the franchisor include:
the right to receive marketing fees and royalties;
the right to control system standards (use of brand and
knowhow); and
the right to audit the franchisee’s accounting books.
One of the most important obligations of the franchisor is to
provide initial training and ongoing support to the franchisee.
7.4 Does the franchisee have any mandatory rights and
obligations under the franchise agreement
The mandatory rights and obligations of the franchisee are those
agreed under the franchise agreement. The main obligations of the
franchisee are to:
observe the system standards as set out in the operations
manual and maintain the quality and consistency of products or
services; and
allow the franchisor to monitor such standards.
Common rights of the franchisee include:
the right to use the franchisor’s trademarks and
knowhow;
the right to an exclusive territory; and
the right to pre-contractual disclosure.
7.5 What restrictions can the franchisor impose on the
franchisee’s activities under the terms of the franchise
agreement (eg, purchasing requirements, non-compete obligations,
exclusivity, price control)?
Based on EU Regulation 2022/720, a franchise agreement can
impose restrictions on active sales (online or offline), but it
cannot restrict passive sales.
Also, a franchisor can recommend the sale price and can even
impose a maximum price to be observed by the franchisee, but it
cannot impose the actual price. An important exception to this rule
was recently introduced by EU Regulation 2022/720, which provides
that a franchisor may impose a sale price for short-term marketing
campaigns only.
It is both common and legal for a franchisor to impose
restrictions in relation to matters such as:
purchasing requirements;
exclusivity in specific territories; and
agreed suppliers (if such suppliers are essential to keep the
franchise system homogeneous).
7.6 Is there a duty of good faith imposed upon the franchisor
and franchisee?
Government Ordinance 52/1997 and the Civil Code impose an
obligation to deal in good faith in business relations in general,
as well as in franchise relationships in particular.
If a party that deals in good faith suffers harm due to the bad
faith of the other party, it can seek damages accordingly.
7.7 What are the parties’ rights and obligations in
relation to renewal of the franchise agreement, and what is the
process for renewal?
The parties do not have a legal right to request renewal of the
franchise agreement; hence, either party may refuse renewal at its
discretion. The other party may not seek compensation for such
refusal.
However, the parties have the flexibility to include renewal
terms and conditions within the franchise agreement, outlining any
compensation relating to non-renewal as they see fit.
7.8 What formal, substantive and procedural requirements apply
with regard to termination of the franchise agreement in your
jurisdiction?
Under Romanian law, there are no specific requirements on the
termination of a franchise agreement; hence, the general provisions
of the Civil Code will apply.
Termination can occur:
by a simple termination notice;
by a succession of:
notice of breach;
a cure period; and
a final termination notice; or
by requesting the court to ascertain the breach and termination
of the agreement.
It is advisable to include termination provisions in the
franchise agreement. These should make clear how the agreement can
be terminated, based on the severity of the breach, meaning that
for some breaches the agreement can be terminated immediately. In
some cases, it is better to deal with minor breaches by providing
for the imposition of fines or monetary penalties in the agreement,
instead of termination.
7.9 Are there any restrictions on repatriating funds out of
your jurisdictions?
No.
7.10 Are there any withholding taxes that apply to franchising
in your jurisdiction (not including the effect of double taxation
treaties)?
There is no specific tax regime for franchising; this will
depend on the legal form used to set up the business.
8 Operational standards
8.1 What legal status does the operations manual have in your
jurisdiction?
From a contractual perspective, the operations manual is a
binding part of the contractual agreement. In addition, the
operations manual encompasses the knowhow of the franchisor and
thus constitutes a trade secret.
8.2 How can the franchisor ensure compliance with its
operational standards during the term of the franchise
agreement?
The most common way to ensure compliance with operational
standards is for the franchisor to provide for the imposition of
sanctions (eg, fines) in case of breach in the franchise
agreement.
8.3 Can the franchisor make unilateral changes to its
operational standards during the term of the franchise
agreement?
The operations manual is subject to evolution and it is standard
practice in the franchising industry for modifications to occur
throughout the duration of the franchise agreement.
However, the franchisee should be given:
sufficient time to comply with changes to the manual; and
the possibility to withdraw from the franchise agreement should
such changes become disproportionately burdensome from a financial
perspective.
9 Intellectual property
9.1 How are brands protected in your jurisdiction and what
specific implications does this have in the franchising
context?
Romanian laws offer various remedies designed to safeguard
against:
trademark and design infringement;
the disclosure of knowhow or trade secrets; and
unlawful competition.
Additionally, the franchisor should include provisions that
allow it to swiftly pursue remedies in the event of trademark,
knowhow or trade secret infringement. Such remedies should include
the possibility to:
stop the infringement quickly; and
obtain monetary relief.
These provisions can help to protect the franchisor’s
intellectual property and business interests more effectively.
9.2 How are other intellectual assets of the franchisor (eg,
know-how, trade secrets) protected in your jurisdiction and what
specific implications does this have in the franchising
context?
In Romania, the protection of intellectual assets –
including knowhow and trade secrets – is governed by several
laws and legal mechanisms. One very efficient mechanism is that in
urgent matters (eg, those involving IP or non-compete
infringements), interim injunctions can be sought through state
court proceedings to temporarily block use.
10 Employment
10.1 What is the applicable employment regime in your
jurisdiction and what specific implications does this have in the
franchising context?
The independence of the franchisee and the franchisor is one of
the fundamental principles of franchising. Thus, there are no
specific employment implications in the franchising context.
10.2 Can franchisees be deemed to be employees of their
franchisor?
If the control that the franchisor exercises over the
franchisee’s employees exceeds the purposes of the franchising
agreement, there is a risk that the employees and managers of the
franchisee may be deemed to be employees of the franchisor.
However, thus far, there is no relevant case law in Romania on this
matter.
11 Competition
11.1 What is the applicable competition regime in your
jurisdiction and what specific implications does this have in the
franchising context?
EU Regulation 2022/720 and local laws (eg, Law 11/1991) apply in
Romania. EU Regulation 2022/720 provides specific exemptions for
the franchising sector in relation to:
permissions for territorial exclusivity; and
the imposition of sales prices under certain conditions.
12 E-commerce
12.1 How is e-commerce regulated in your jurisdiction and what
specific implications does this have in the franchising context?
Can franchisees be prohibited from using e-commerce in their
businesses?
If the franchise involves online sales, the parties must comply
with the e-commerce regulations. Additionally, the franchisor may
not prevent franchisees from selling their products or services
online. However, it may:
control the way in which online sales are conducted; and
ensure that they comply with the franchisor’s knowhow and
franchise standards.
13 Consumer protection
13.1 What consumer protection measures are applicable in your
jurisdiction and what specific implications do these have in the
franchising context?
The applicability of Law 363/2007, which sets out the legal
framework on consumer protection, may be relevant within the
franchising context. This law applies exclusively to consumers who
are:
natural persons; and
clients or customers of the franchise.
13.2 Are franchisees covered under any of these consumer
protection measures?
The franchisee is not considered to be a consumer under Romanian
law, but rather a professional merchant. Therefore, the consumer
protection laws do not apply to the franchisor-franchisee
relationship. Of course, if the franchisee sells products or
services to consumers (natural persons), the consumer protection
laws and measures will apply.
14 Data security and cybersecurity
14.1 What is the applicable data protection regime in your
jurisdiction and what specific implications does this have in the
franchising context?
In Romania, the applicable data protection law is the General
Data Protection Regulation (2016/679) (GDPR). National laws do not
provide for significant deviations from the GDPR.
The data protection implications of the franchisor-franchisee
relationship must be established through a data processing
agreement in which the parties have the roles of
controller/processor or joint controllers.
14.2 What cybersecurity obligations are applicable in your
jurisdiction and what specific implications does this have in the
franchising context?
Romania has no cybersecurity obligations with specific
implications for franchising. Even so, franchisors and franchisees
should be aware of the need to protect vital assets such as
customer databases, financial data and business data from
unauthorised access, theft, damage or destruction.
The GDPR is just one example of laws that require:
the implementation of appropriate technical safeguards for data
protection; and
the reporting of data breaches to regulatory bodies in the
event of cyber incidents.
Additionally, European laws that pre-date the GDPR require
certain telecommunications companies and internet service providers
to promptly notify both regulators and affected individuals in the
event of security breaches.
15 Disputes
15.1 In which forums are franchising disputes typically heard
in your jurisdiction (ie, courts or arbitration)?
If an amicable resolution cannot be reached, there are two
dispute resolution options:
the state courts; and
the arbitration courts.
The arbitration procedure is quicker than the state court
procedure; but it is also more expensive than the latter. Another
advantage of arbitration is, in some cases, the confidentiality of
the arbitration file.
In urgent matters (eg, involving IP/non-compete infringements),
interim injunctions can be sought through state court proceedings
to temporarily block use. This type of injunction is not possible
in arbitration court proceedings.
15.2 Is mandatory non-binding mediation commonly used in
franchising in your jurisdiction?
Franchisors and franchisees can seek amicable settlement and
mediation before submitting their case to the courts. However, this
preliminary step is not mandatory.
15.3 Is arbitration in your jurisdiction subject to any special
requirements? Is your jurisdiction a party to the New York
Convention?
Arbitration is not subject to any special requirements. Romania
is a party to the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards and the Romanian judiciary
is typically ready to acknowledge and uphold foreign arbitral
awards from fellow convention nations.
15.4 Can class actions be brought in your jurisdiction? If so,
what specific implications does this have in the franchising
context?
Romanian law has no specific provisions on class actions; but
multiple plaintiffs with connected interests can submit a court
claim together. For example, if multiple franchisees claim the same
breach of the franchise agreement by the franchisor, they can
submit a claim in court together and each of them can request the
damages incurred. This claim has the advantage of splitting the
burden of proof.
15.5 Have there been any recent cases of note?
There is not yet a substantial body of jurisprudence on
franchising in Romania; but we are aware of several important
rulings, some of which are ground-breaking. They include the
following:
Two franchise agreements concluded with a local franchisor were
annulled and the franchisees were awarded full compensation for
damages. This decision is important as it was the first of its kind
to be issued after Law 179/2019 came into force, which provides for
the annulment of a franchise agreements where the franchisor has
insufficient knowhow to operate the business.
The operations of several restaurants located within major
shopping centres were subject to an immediate cessation order due
to breach of the franchisor’s proprietary knowhow.
16 Trends and predictions
16.1 How would you describe the current franchising landscape
and prevailing trends in your jurisdiction? Are any new
developments anticipated in the next 12 months, including any
proposed legislative reforms?
The franchise landscape in Romania is stable and no substantial
legal developments that could significantly impact franchise
relationships are expected in the next year or so. However, a
significant positive change could arise from Romania’s
potential entry to the Schengen Area, although the timing of this
remains uncertain. Participation in the Schengen Area would
simplify the cross-border transportation of products and workers,
thus streamlining daily operations for international
businesses.
17 Tips and traps
17.1 What are your top tips for franchisors seeking to enter
your jurisdiction and what potential sticking points would you
highlight?
As a franchisor, it is imperative to:
ensure that your operations are aligned with the Romanian
franchise regime and uphold legal compliance within the framework
of your agreements;
ensure that your trademarks are properly protected in Romania;
and
choose the optimal set of governing laws to ensure the proper
protection of knowhow in case of infringement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.