Franchise and Distribution Agreements in Turkey: Legal Risks and Protections
Doing business in Turkey through a local partner can be very attractive. The market is young, dynamic and strongly connected to both Europe and the Middle East. However, using franchise or distribution models without a solid contract can easily lead to disputes, loss of reputation and financial damage.
This article explains, in clear and practical terms, the main legal risks in franchise and distribution agreements in Turkey and how you can protect yourself by contract.
1. Franchise vs. Distribution: What Is the Difference?
Although they are often used together, franchise and distribution are not the same.
- Franchise agreement
The franchisor gives the franchisee the right to use:- A brand/trademark
- A business model and know-how
- Certain standards and manuals
In return, the franchisee usually pays: - An initial franchise fee, and
- Continuing royalties or a share of turnover.
- Distribution agreement
The supplier (manufacturer) sells products to the distributor. The distributor:- Buys and resells the goods in a territory,
- Often acts in its own name and on its own account, and
- May or may not use the supplier’s brand in marketing.
In practice, many agreements are hybrid (for example, exclusive distributor with some franchise-style obligations). For this reason, you should clearly define in the contract:
- The role of the local partner (franchisee, distributor, or both),
- Whether they act as independent contractor or agent,
- Who bears the commercial risk and stock risk.
This clarity is essential for risk allocation and tax, competition and liability issues.
2. Key Legal Risks in Turkish Franchise and Distribution Deals
a) Lack of Clear Territory and Exclusivity Rules
One of the biggest practical problems is territory conflict:
- The partner believes it has exclusive rights to a city or country.
- The foreign brand later appoints another partner or sells online to the same region.
- This leads to claims of breach and compensation.
To avoid this, always define:
- The exact territory (countrywide? city? shopping mall only?),
- Whether the rights are exclusive, sole or non-exclusive, and
- Whether the brand can sell directly (through e-commerce, key accounts, duty free, etc.) in that territory.
b) Weak IP and Brand Protection
Franchise and distribution agreements are built around brands and know-how. In Turkey, many disputes arise when:
- The local partner registers the trademark or a similar brand in its own name,
- The partner continues using the brand after termination,
- Trade secrets (client lists, manuals, recipes, software) are used for a competing business.
To protect yourself, your contract should:
- Confirm that all IP rights remain with the foreign company.
- Prohibit the partner from:
- Registering or using similar trademarks, domain names or social media accounts.
- Challenging your trademark or helping others to do so.
- Include strong confidentiality and non-disclosure clauses.
- Regulate how manuals, know-how and software can be used, copied and returned.
It is also good practice to register your trademark in Turkey as early as possible and align the contract with that registration.
c) Competition Law (Antitrust) Issues
Turkey’s competition law is largely harmonized with EU rules. Certain restrictions in vertical (supplier–distributor, franchisor–franchisee) agreements are risky, such as:
- Resale price maintenance (fixing the exact resale price and punishing discounts),
- Market/customer sharing between competitors,
- Excessively long or broad non-compete obligations without justification.
Your agreement should:
- Allow the distributor or franchisee some real freedom to set resale prices (you can recommend or set maximum prices, but avoid strict minimums and punishments for discounting).
- Draft non-compete clauses in a way that is proportionate in time, territory and subject, especially after termination.
- Be careful with clauses that restrict passive sales (for example, refusing online sales without justification).
If your franchise or distribution network will be large or the parties have significant market power, you should take extra care about compliance with Turkish competition rules.
3. Commercial and Operational Risks
a) Performance Targets and Stock Risk
Many foreign suppliers impose minimum purchase obligations or performance targets on their Turkish distributors or franchisees. The risk:
- Too aggressive targets can be unrealistic and create constant breach.
- Excess stock might lead the distributor to sell below brand standards or through unauthorized channels.
To protect both sides, clearly regulate:
- How annual targets are set and reviewed,
- What happens if the partner misses the target (e.g., loss of exclusivity instead of automatic termination),
- Who bears the stock risk at the end of the relationship and whether the supplier will buy back unsold stock (and at what price).
b) Operational Control and Compliance with Brand Standards
Franchisors usually want strong control over:
- Store design and concept,
- Uniforms, signage and marketing materials,
- Service quality and customer experience.
However, too much control without clear rules can generate disputes, especially if the partner invests heavily in local adaptation.
Your agreement should:
- Attach or refer to brand manuals and standards,
- Give the franchisor the right to inspect and audit,
- Set a reasonable time frame to fix non-compliance before termination,
- Clarify which changes (e.g., rebranding, redesign) are at the partner’s cost and which at the brand’s cost.
4. Termination, Compensation and Post-Termination Protections
Many disputes in Turkey arise at the end of the relationship, not at the beginning. Common issues:
- Claims for investment recovery: the local partner invested in shops, staff and stock and expects some compensation.
- Claims for client portfolio value, especially in distribution structures that resemble agency.
- Sudden termination without a fair notice period.
To reduce these risks, your contract should:
- Regulate termination grounds clearly, for example:
- Material breach not cured within a certain time,
- Insolvency, loss of licenses,
- Repeated failure to meet minimum targets,
- Serious reputational harm.
- Define notice periods, for example:
- For ordinary termination of a fixed-term contract after the initial period,
- For non-renewal or termination without breach.
- Manage expectations on compensation:
- Clarify whether there is any goodwill or portfolio compensation.
- Explain that the partner acts as an independent contractor and bears its own investment risk, to the extent permitted by law.
- Regulate how remaining stock, equipment and branded materials will be handled (buy-back, destruction, discount sale, etc.).
- Include post-termination clauses:
- Immediate stop of brand and IP use,
- Removal of signs and trade dress,
- Return or destruction of confidential information,
- Reasonable time to sell off remaining stock, if agreed.
5. Governing Law, Dispute Resolution and Language
For operations in Turkey, it is natural (and often practical) to choose Turkish law. However, some foreign companies prefer their own law or another neutral system. You have several options:
- Turkish law + Turkish courts
More predictable enforcement in Turkey, but proceedings may be slower and in Turkish. - Foreign law + arbitration (e.g., ICC, ISTAC)
Often used for larger, international franchise networks. Arbitration awards are generally enforceable in Turkey, but costs are higher. - Turkish law + arbitration
Combines local substantive rules with international-type procedure.
Whichever you choose, your contract should:
- Clearly define the governing law,
- Select courts or an arbitral tribunal, with seat and rules,
- Address the contract language and which version prevails if you have both English and Turkish texts.
Because franchise and distribution relationships are long-term and involve significant investments, a well-chosen dispute resolution clause is a form of risk insurance.
Conclusion
Franchise and distribution agreements in Turkey offer great opportunities, but they also carry serious legal and commercial risks if not properly drafted. To protect yourself:
- Define the role, territory and exclusivity very clearly,
- Secure your IP and confidentiality,
- Respect and plan for competition law limits,
- Manage performance, stock and brand standards by contract,
- Prepare a detailed and fair termination and post-termination mechanism, and
- Choose a suitable governing law and dispute resolution method.
Careful contractual planning at the beginning is almost always cheaper than litigation at the end.
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