Franchise Arbitration in Turkey: Brand Standards, Royalties and Termination Disputes

Introduction

Franchising enables a business to expand through independently operated outlets while preserving a common commercial identity. The franchisee generally receives the right to use the franchisor’s trademark, business model, operational know-how, visual identity and commercial systems. In return, the franchisee commonly pays an initial franchise fee, continuing royalties and contributions to marketing or technology systems.

The relationship may appear commercially straightforward at the beginning. However, franchise agreements combine intellectual property licensing, product supply, operational control, training, confidentiality, territorial protection and continuing payment obligations. Disputes may therefore involve several areas of Turkish law at the same time.

Common disagreements include:

• Non-payment or incorrect calculation of royalties;
• Failure to comply with brand and quality standards;
• Use of unauthorised suppliers;
• Disputes over territorial exclusivity;
• Restrictions on internet and passive sales;
• Failure to provide promised training and commercial support;
• Misuse of confidential know-how;
• Unauthorised use of trademarks after termination;
• Wrongful or immediate termination;
• Post-contractual non-compete obligations;
• Repurchase of inventory and equipment;
• Compensation for loss of the customer portfolio.

For domestic and cross-border franchise relationships, arbitration can provide a specialist, neutral and flexible dispute resolution mechanism. Franchise arbitration in Turkey allows parties to determine the seat, language, procedural rules and number of arbitrators. The parties may also appoint decision-makers experienced in franchise systems, trademark licensing, competition law and commercial damages.

Arbitration does not, however, eliminate mandatory Turkish law. Contractual clauses concerning resale prices, territorial restrictions, non-compete obligations, trademark use and termination must be assessed under the applicable competition, intellectual property and commercial-law rules.

This guide examines franchise arbitration in Türkiye, including brand standards, franchise fees, royalties, exclusivity, competition restrictions, termination, interim measures, customer portfolio compensation and enforcement of arbitral awards.

What Is a Franchise Agreement?

A franchise agreement is a continuing commercial relationship under which the franchisor authorises the franchisee to operate according to a defined business system.

The package commonly includes:

• A trademark or trade name;
• A standardised commercial identity;
• Operational know-how;
• Store or workplace design;
• Products or approved supply systems;
• Training;
• Marketing assistance;
• Technical and commercial support;
• Software and reporting systems;
• Continuing supervision.

The Turkish Competition Authority describes franchise agreements as arrangements involving licences of intellectual property rights—particularly trademarks, signs and know-how—used in the distribution of goods or services. It also observes that the franchisor generally provides commercial and technical assistance during the term and that those licences and services form complementary parts of the franchise business method.

Unlike a simple trademark licence, a franchise relationship normally involves the transfer of an entire commercial format.

Unlike an agency relationship, the franchisee generally operates in its own name and bears the commercial risks of its outlet.

Unlike an employment relationship, the franchisee is usually an independent business rather than a subordinate employee.

The commercial label selected by the parties is not always decisive. An arbitral tribunal may examine the actual allocation of risk, control, ownership, pricing, supply obligations and customer relationships to determine the legal nature of the arrangement.

Legal Nature of Franchise Agreements under Turkish Law

Turkish legislation does not regulate every aspect of franchising through a single dedicated statutory chapter. Franchise disputes are therefore assessed through the agreement itself and the legal rules relevant to each component of the relationship.

Depending on the dispute, the applicable rules may include:

• General contract principles under the Turkish Code of Obligations;
• Commercial-law rules under the Turkish Commercial Code;
• Trademark licensing under Industrial Property Code No. 6769;
• Competition Law No. 4054;
• The Vertical Agreements Block Exemption Communiqué No. 2002/2;
• The Turkish Code of Civil Procedure;
• Turkish International Arbitration Law No. 4686;
• The selected institutional arbitration rules.

The franchise agreement is commonly characterised as a continuing and mixed contractual relationship. It may contain elements of licensing, supply, service, lease, distribution, confidentiality and mandate.

This mixed structure matters because the tribunal should not apply the legal rules governing one contract type mechanically to every dispute.

For example:

• A defective product claim may involve sale-of-goods rules;
• Failure to provide training may involve service obligations;
• Trademark misuse may involve industrial property law;
• A customer portfolio claim may raise questions under commercial agency and exclusive distribution principles;
• Territorial restrictions may require competition-law analysis.

Why Choose Arbitration for Franchise Disputes?

Specialist decision-makers

Franchise disputes often require simultaneous consideration of:

• Commercial contracts;
• Intellectual property;
• Competition law;
• Accounting;
• Retail operations;
• Brand management;
• Business valuation.

The parties may select arbitrators with relevant legal and sector experience.

A tribunal familiar with franchise systems may understand that consistency across the network can be commercially essential while still distinguishing legitimate quality control from excessive or unlawful restrictions.

Neutrality in international franchise relationships

A foreign franchisor may grant a master franchise or unit franchise to a Turkish company. The franchisee may invest substantial capital in Türkiye while the trademark owner, supply company and software provider are located abroad.

Arbitration allows the parties to avoid giving either side an automatic home-court advantage.

The parties may agree on:

• Istanbul or another city as the seat;
• Turkish or foreign substantive law;
• English or Turkish as the procedural language;
• ISTAC or another arbitral institution;
• A sole arbitrator or three-member tribunal.

Confidentiality and brand protection

Franchise disputes may involve sensitive information such as:

• Recipes;
• Operational manuals;
• Pricing methods;
• Approved supplier lists;
• Customer data;
• Financial performance;
• Product-development plans;
• Audit reports;
• Internal quality failures.

The parties may adopt confidentiality provisions, restricted document access and secure procedures for commercially sensitive evidence.

Confidentiality should be addressed expressly because the private nature of arbitration does not necessarily create an identical and absolute confidentiality obligation for every participant.

International enforceability

A franchise award may need to be enforced against bank accounts, shares, receivables or other commercial assets in a country different from the seat of arbitration.

The New York Convention establishes common standards for recognising arbitration agreements and enforcing foreign and non-domestic arbitral awards in contracting jurisdictions, subject to limited refusal grounds.

Turkish Arbitration Framework

The applicable arbitration legislation depends principally on the seat and whether the dispute contains a qualifying foreign element.

Domestic arbitration

Articles 407 to 444 of the Turkish Code of Civil Procedure generally govern Turkey-seated arbitration without the foreign element defined under the International Arbitration Law.

The Code recognises written arbitration agreements and permits the parties to refer all or part of an existing or future contractual or non-contractual dispute to arbitration.

International arbitration

Turkish International Arbitration Law No. 4686 principally applies to Turkey-seated arbitration containing a statutory foreign element.

A dispute between a foreign franchisor and Turkish franchisee will ordinarily have an international dimension. A relationship between Turkish parties may also contain a foreign element where it involves foreign capital, cross-border performance or another connection recognised under the legislation.

The law governing the franchise agreement should be distinguished from:

• The law governing the arbitration agreement;
• The procedural law determined by the seat;
• Mandatory Turkish rules applying to conduct in the Turkish market.

For example, the franchise agreement may be governed by foreign law while Turkish competition and trademark rules remain relevant to operations conducted in Türkiye.

Are Franchise Disputes Arbitrable?

Most private contractual franchise disputes concern rights that the parties may dispose of freely and may therefore be suitable for arbitration.

Examples include:

• Unpaid royalties;
• Initial franchise fees;
• Marketing contributions;
• Breach of quality standards;
• Supply obligations;
• Territorial exclusivity;
• Training and support obligations;
• Wrongful termination;
• Post-termination trademark use;
• Confidentiality;
• Inventory repurchase;
• Contractual penalties;
• Damages.

Arbitration does not replace public authorities.

An arbitral tribunal may determine whether a competition-law breach affected the parties’ contractual rights, but it cannot annul an administrative fine imposed by the Turkish Competition Authority.

Similarly, a tribunal may determine whether the franchisee breached a trademark licence, but it cannot be assumed to have authority to cancel a Turkish trademark registration with effect against everyone.

Initial Franchise Fees

The initial fee generally compensates the franchisor for granting access to the system and providing start-up services.

It may cover:

• Use of the brand;
• Initial training;
• Operational manuals;
• Store design;
• Site assessment;
• Opening assistance;
• Software installation;
• Initial marketing;
• Know-how transfer.

Disputes may arise where the franchise relationship does not begin as planned.

The franchisee may seek repayment because:

• The location was not approved;
• Required permits could not be obtained;
• Training was not delivered;
• The franchisor did not grant the promised territorial rights;
• The business model was allegedly misrepresented;
• Opening was delayed by the franchisor.

The franchisor may respond that the fee was earned upon signing, reservation of the territory or delivery of confidential information.

The agreement should therefore state:

• When the fee becomes earned;
• Whether any part is refundable;
• What happens if the outlet never opens;
• Which party bears permit and site risk;
• Whether the fee covers specified services;
• What happens if the agreement is terminated before opening.

Continuing Royalties

Royalties are commonly calculated as:

• A percentage of gross revenue;
• A percentage of net sales;
• A fixed monthly amount;
• A minimum monthly royalty;
• A combination of fixed and variable amounts.

Disputes often concern the definition of sales.

The agreement should specify whether the royalty base includes or excludes:

• Value added tax;
• Discounts;
• Refunds;
• Cancelled orders;
• Delivery charges;
• Online sales;
• Gift cards;
• Sales through third-party platforms;
• Sales to affiliated businesses;
• Promotional products;
• Insurance or service income.

A franchisee may argue that the franchisor incorrectly included taxes or refunded transactions. The franchisor may allege underreporting, cash sales outside the system or diversion of transactions to an affiliate.

The award should identify the royalty base, relevant periods, applicable percentage, currency and interest clearly.

Sales Reporting and Audit Rights

The franchisor generally requires access to sales information because royalties and marketing contributions depend on reported turnover.

The agreement may require the franchisee to:

• Use approved point-of-sale software;
• Submit daily or monthly sales reports;
• Preserve accounting records;
• Permit financial audits;
• Provide tax declarations;
• Allow access to inventory records;
• Report third-party delivery-platform sales.

Audit disputes may concern:

• Scope of access;
• Confidentiality;
• Personal data;
• Frequency of inspections;
• Cost of the audit;
• Treatment of discrepancies;
• Extrapolation from sample periods.

An agreement may provide that the franchisee pays audit expenses where underreporting exceeds a defined threshold.

The tribunal should not assume that every accounting difference proves intentional fraud. It should distinguish among:

• Technical reporting errors;
• Different accounting classifications;
• Negligent underreporting;
• Deliberate concealment;
• Sales diverted outside the franchise business.

Brand Standards and Quality Control

Uniformity is one of the essential commercial features of a franchise system.

The franchisor may prescribe:

• Product specifications;
• Recipes and ingredients;
• Store design;
• Staff clothing;
• Customer-service standards;
• Opening hours;
• Advertising formats;
• Packaging;
• Hygiene rules;
• Equipment;
• Software;
• Approved suppliers.

Trademark law also recognises the importance of quality control. Article 24 of Industrial Property Code No. 6769 permits trademark licensing and requires the licensor to take measures to guarantee the quality of goods or services offered by the licensee. The licensee must comply with the licence terms; otherwise, the trademark proprietor may exercise its trademark rights against the licensee.

A brand-standard dispute may arise where the franchisor alleges:

• Repeated hygiene failures;
• Unauthorised products;
• Altered recipes;
• Unapproved advertising;
• Poor service;
• Failure to renovate;
• Use of substitute ingredients;
• Damage to brand reputation.

The franchisee may respond that:

• Standards were unclear;
• Requirements changed without reasonable notice;
• The required investment was excessive;
• Comparable franchisees were treated differently;
• The franchisor failed to supply approved materials;
• The alleged breach was minor and curable.

The agreement should classify breaches according to severity and provide suitable warning and cure procedures.

Inspections and Compliance Reviews

The franchisor may reserve the right to inspect outlets, conduct mystery-shopping reviews and audit operational compliance.

The contract should regulate:

• Notice periods;
• Unannounced inspections;
• Access to premises;
• Photography and recording;
• Scoring methodology;
• Corrective action periods;
• Repeat inspections;
• Consequences of failure.

Inspection rights should be exercised consistently and in good faith.

A franchisor seeking immediate termination based on a poor audit should preserve:

• Inspection reports;
• Photographs;
• Witness statements;
• Prior warnings;
• Corrective action plans;
• Comparable network standards.

The franchisee should document remedial work and objections to inaccurate or inconsistent scoring.

Supply and Approved Supplier Disputes

Franchisees may be required to purchase products, ingredients, equipment or packaging from:

• The franchisor;
• A designated supplier;
• An approved supplier list;
• Suppliers satisfying defined specifications.

Such requirements may protect consistency, safety and brand quality.

Disputes may arise where:

• Prices are allegedly excessive;
• Supplies are delayed;
• Goods are defective;
• Approved alternatives are refused;
• The franchisor earns undisclosed supplier rebates;
• The designated supplier cannot meet demand;
• Product shortages interrupt operations.

The agreement should identify:

• Whether exclusive sourcing is mandatory;
• The quality reasons supporting the restriction;
• Pricing mechanism;
• Delivery responsibility;
• Alternative sourcing during shortages;
• Product warranties;
• Recall procedures;
• Responsibility for regulatory compliance.

The Competition Authority recognises that franchise agreements commonly combine intellectual property licensing, know-how, technical assistance and vertical restrictions such as selective distribution, exclusivity and non-compete obligations.

Territorial Exclusivity

A franchisee may receive exclusive rights for a city, district, shopping centre, delivery area or customer group.

Territorial disputes commonly concern:

• Opening of another outlet nearby;
• Direct franchisor sales;
• Sales by company-owned stores;
• Delivery-platform orders;
• Internet sales;
• Mobile outlets;
• Pop-up stores;
• Sales by another franchisee;
• Corporate or institutional customers.

A clause describing a territory as “exclusive” should explain whether the franchisor may:

• Sell online;
• Operate through affiliates;
• Supply national accounts;
• Open airport or motorway locations;
• Sell through supermarkets;
• Accept passive customer requests;
• Conduct temporary promotions.

Absolute territorial protection may conflict with competition-law rules.

Active and Passive Sales

Turkish competition guidance distinguishes between active and passive sales.

Active sales generally involve direct targeting of customers in another allocated territory, such as targeted advertising, direct solicitation or opening a sales outlet there.

Passive sales generally involve responding to unsolicited customer requests. General internet sales are ordinarily treated as passive sales unless the seller specifically targets another exclusive territory.

A franchisor may, within the applicable framework, restrict certain active sales into an exclusively allocated territory. Broad restrictions preventing franchisees from responding to unsolicited customers or operating an ordinary website may remove the agreement from the protection of the block exemption.

Franchise agreements should therefore avoid language that absolutely prohibits every sale outside the allocated territory without distinguishing active from passive sales.

Resale Price Restrictions

Franchisors frequently want uniform consumer pricing, especially where the network uses national advertising.

However, the Turkish Competition Authority’s vertical-agreements guidance states that fixed or minimum resale pricing is prohibited for purposes of the block exemption. A supplier may recommend a resale price or set a genuine maximum price, provided that pressure or incentives do not convert that price into a fixed or minimum price.

Potentially problematic practices include:

• Threatening termination for discounting;
• Withholding benefits from franchisees using lower prices;
• Requiring prior approval for discounts;
• Fixing minimum menu or service prices;
• Monitoring and punishing deviations;
• Coordinating franchisees’ prices indirectly.

The franchisor may still organise genuine short-term promotional campaigns where the structure complies with applicable competition law.

An arbitral tribunal determining a termination dispute may need to consider whether the franchisor attempted to enforce an unlawful resale-price restriction.

Market Share and Block Exemption

Under the current vertical-agreements framework, the relevant block exemption generally depends on a 30% market-share threshold, together with compliance with the other requirements and absence of excluded restrictions.

The Competition Authority’s guidance applies this threshold specifically to franchise arrangements involving vertical restrictions concerning the purchase, sale or resale of goods and services.

Exceeding the threshold does not automatically establish that the entire franchise agreement is unlawful. It means that the agreement may require an individual assessment under competition law.

The tribunal should therefore distinguish among:

• Availability of block exemption;
• Individual exemption;
• Actual infringement;
• Severability of the problematic clause;
• Contractual consequences between the parties.

Non-Compete Obligations during the Agreement

A franchise system commonly prevents the franchisee from operating a competing business during the term.

This may protect:

• Confidential know-how;
• The identity of the network;
• Brand reputation;
• Franchisor training and investment;
• Common operational standards.

The Competition Authority’s franchise guidance states that a non-compete obligation concerning the goods or services purchased by the franchisee may fall outside the prohibition where it is necessary to protect the common identity and prestige of the franchise network. In that context, the duration generally does not create a problem where it does not extend beyond the franchise agreement itself.

This does not mean every in-term restriction is automatically valid.

The tribunal may consider:

• The scope of competing activities;
• Products and services covered;
• Territory;
• Duration;
• Necessity for protecting know-how;
• Market power;
• Effect on competition.

Post-Termination Non-Compete Obligations

Post-term restrictions require narrower drafting.

Under the general vertical-agreements guidance, post-contractual non-compete obligations are ordinarily outside the block exemption. A limited exception may apply for a period not exceeding one year where the restriction:

• Concerns competing goods or services;
• Is limited to the premises or land from which the franchisee operated;
• Is necessary to protect know-how transferred by the franchisor.

Restrictions on the use or disclosure of know-how that has not entered the public domain may continue for a longer period.

The agreement should distinguish between:

• Prohibition on operating a competing business;
• Prohibition on using confidential know-how;
• Prohibition on misusing trademarks;
• Non-solicitation of employees;
• Non-solicitation of customers.

These obligations do not necessarily have identical permissible durations or territorial scopes.

Franchisor’s Training and Support Obligations

The franchisee normally pays not only for use of the trademark but also for access to a functioning commercial system.

The franchisor may promise:

• Initial training;
• Continuing training;
• Opening assistance;
• Marketing materials;
• Software support;
• Product development;
• Site selection assistance;
• Operational manuals;
• Procurement support;
• Network campaigns.

The franchisee may allege that the franchisor collected fees without providing meaningful assistance.

The franchisor may respond that the franchisee:

• Did not attend training;
• Ignored manuals;
• Refused required improvements;
• Failed to submit information;
• Operated outside the system.

The contract should define support obligations objectively rather than relying on general phrases such as “reasonable support.”

Marketing Contributions

Franchisees may be required to contribute a percentage of sales to a national or regional advertising fund.

Disputes may concern:

• Whether contributions were spent for the network;
• Whether the franchisor must provide accounts;
• Whether company-owned outlets contribute equally;
• Whether campaigns benefited the franchisee’s territory;
• Whether administrative costs may be deducted;
• Whether unused funds must be returned.

The agreement should specify that a marketing contribution is not necessarily a promise that every individual campaign will generate a measurable return for each outlet.

However, the franchisor should maintain clear records and comply with contractual restrictions on the use of the fund.

Termination of Franchise Agreements

Termination is one of the most significant areas of franchise arbitration.

A franchise agreement may be:

• Fixed term;
• Indefinite term;
• Renewable subject to conditions;
• Terminated for convenience;
• Terminated immediately for cause.

Possible grounds for termination include:

• Non-payment of royalties;
• Serious brand-standard violations;
• Repeated failed inspections;
• Unauthorised competition;
• Misuse of trademarks;
• Insolvency;
• Fraud;
• Corruption;
• Abandonment of the business;
• Failure to maintain required licences;
• Unauthorised transfer of control;
• Disclosure of confidential know-how.

The contract should distinguish between:

• Breaches requiring notice and an opportunity to cure;
• Serious breaches permitting immediate termination;
• Repeated minor breaches;
• Breaches incapable of remedy.

A minor operational failure should not automatically be treated in the same way as deliberate trademark misuse or fraudulent underreporting.

Wrongful Termination Claims

A franchisee may claim that termination was invalid because:

• No material breach occurred;
• Contractual notice was defective;
• The cure period was ignored;
• The franchisor acted inconsistently;
• Comparable franchisees were treated differently;
• The alleged breach was caused by the franchisor;
• Termination was used to take over a profitable location.

Potential damages may include:

• Lost profit for the remaining contractual period;
• Wasted investment;
• Unamortised opening expenditure;
• Inventory loss;
• Demobilisation costs;
• Loss of business value;
• Contractual penalties.

The franchisor may argue that the franchisee failed to mitigate loss or that future profits are speculative.

The tribunal should separate:

• Loss caused by termination;
• Ordinary business risk;
• Loss caused by poor management;
• Loss occurring before the breach;
• Value of assets retained by the franchisee.

Post-Termination Obligations

Following termination, the franchisee may be required to:

• Stop using the trademark;
• Remove signs and branded materials;
• Return manuals;
• Delete software access;
• Transfer telephone numbers or domain names;
• Return confidential information;
• Stop representing itself as part of the network;
• Pay outstanding royalties;
• Comply with a valid non-compete restriction.

The agreement should regulate:

• The de-branding period;
• Disposal or sale of remaining stock;
• Repurchase of equipment;
• Treatment of customised premises;
• Continued servicing of customers;
• Data return or deletion;
• Transfer of social media accounts.

A franchisor may seek urgent relief where continued trademark use creates customer confusion or damages the network.

Trademark Use after Termination

The franchisee’s right to use the brand normally ends with the franchise licence.

Industrial Property Code Article 24 requires the licensee to comply with the licence terms and permits the trademark owner to exercise registration-based rights against a non-compliant licensee.

A former franchisee may be liable where it continues to:

• Display the sign;
• Use branded packaging;
• Operate a confusingly similar website;
• Use the mark in online advertising;
• Present itself as an authorised outlet;
• Use the franchisor’s business appearance.

The tribunal may determine contractual liability between the parties, while coercive measures involving third parties, domain registries, customs or physical seizure may require court assistance.

Inventory and Equipment after Termination

A franchisee may hold:

• Branded goods;
• Packaging;
• Ingredients;
• Uniforms;
• Equipment;
• Signs;
• Furniture;
• Specialised machinery.

The contract should state:

• Whether the franchisor must repurchase inventory;
• Applicable valuation;
• Treatment of expired or damaged stock;
• Responsibility for transport;
• Whether equipment is owned, leased or financed;
• Whether the franchisee may continue selling products during a limited sell-off period.

There is no universal outcome applicable to every franchise system. The tribunal must examine the agreement, reason for termination, condition of the goods and whether the franchisor encouraged the franchisee to acquire excessive stock shortly before termination.

Customer Portfolio Compensation

Whether a franchisee may claim customer portfolio or equalisation compensation requires careful and case-specific analysis.

Article 122 of the Turkish Commercial Code grants qualifying commercial agents an equalisation claim where the principal continues to obtain substantial benefits from customers introduced by the agent, the agent loses future commission and compensation is equitable.

The article also provides that the rule may apply, where not contrary to equity, to exclusive distributorships and similar continuing contractual relationships granting monopoly rights. The claim cannot be waived in advance and must be asserted within one year after termination.

A franchisee does not automatically qualify for compensation merely because the agreement ended.

Relevant issues may include:

• Whether the franchisee had a genuine exclusive or monopoly territory;
• Whether the franchisee created an identifiable customer base;
• Whether customer information transferred to the franchisor;
• Whether customers remained primarily loyal to the franchisor’s brand;
• Whether the franchisor continued benefiting from the location and network;
• Whether compensation would be equitable;
• Who caused termination.

Because franchise systems often generate customer loyalty to the brand rather than the individual franchisee, equalisation claims may require detailed economic and factual evidence.

Interim Measures and Emergency Arbitration

Urgent protection may be needed before the main arbitral tribunal is constituted.

The franchisor may seek to prevent:

• Continuing trademark use;
• Disclosure of manuals;
• Sale of unauthorised goods;
• Destruction of sales records;
• Transfer of the outlet;
• Misuse of customer data.

The franchisee may seek to prevent:

• Immediate termination of essential software access;
• Removal of equipment;
• Appointment of a replacement franchisee;
• Calling of a guarantee;
• Disposal of disputed inventory;
• Termination without the contractual cure period.

ISTAC maintains an emergency arbitrator procedure for urgent applications made before the file is transmitted to the main tribunal.

Court assistance may remain necessary where:

• An ex parte order is required;
• The measure must bind a third party;
• Physical seizure is necessary;
• A registry or bank must act;
• Coercive enforcement is required.

Applying for judicial interim protection does not necessarily waive the arbitration agreement where the applicable law permits such assistance.

Evidence in Franchise Arbitration

Franchise disputes are document-intensive.

Relevant evidence may include:

• Franchise agreements and amendments;
• Operational manuals;
• Inspection reports;
• Royalty statements;
• Point-of-sale data;
• Audit reports;
• Tax records;
• Supplier invoices;
• Marketing fund accounts;
• Territory maps;
• Training records;
• Warning notices;
• Cure plans;
• Customer complaints;
• Photographs and video;
• Emails and messaging records;
• Software logs.

The parties should preserve electronic records once a dispute becomes foreseeable.

Point-of-sale and platform data may establish:

• Actual turnover;
• Cash sales;
• Discounting;
• Online sales;
• Operating hours;
• Use of unauthorised products;
• Diversion of revenue.

Expert Evidence

Experts may be required in:

• Forensic accounting;
• Trademark valuation;
• Retail operations;
• Food safety;
• Competition economics;
• Business valuation;
• Damages calculation;
• Information technology.

A royalty expert may reconstruct sales where the franchisee’s records are incomplete.

A valuation expert may calculate:

• Lost profit;
• Unamortised investment;
• Business value;
• Customer portfolio value;
• Cost of rebranding;
• Value of inventory and equipment.

The tribunal remains responsible for interpreting the contract. An expert should not decide whether termination was legally valid.

Multi-Party and Multi-Contract Franchise Disputes

A franchise structure may involve:

• The trademark owner;
• A master franchisor;
• A Turkish master franchisee;
• Unit franchisees;
• Approved suppliers;
• A leasing company;
• A software provider;
• A guarantor;
• Shopping centre landlords.

Not every connected party is automatically bound by the arbitration clause.

The franchise agreement may provide for ISTAC arbitration, while:

• The trademark licence refers to foreign courts;
• The equipment lease refers to Turkish courts;
• The guarantee is silent;
• The supply agreement uses another institution.

This may produce parallel proceedings.

The dispute resolution provisions should be coordinated where claims are likely to overlap. The parties should consider:

• Joinder;
• Consolidation;
• Common tribunal appointment;
• Accession of affiliates;
• Guarantor consent;
• Compatible governing laws.

Drafting a Franchise Arbitration Clause

ISTAC’s model clause provides that disputes arising out of or connected with the contract will be finally resolved under the ISTAC Arbitration Rules. ISTAC also allows parties to specify the place, language, number of arbitrators, governing law and whether emergency arbitration will apply.

An expanded clause may provide:

Any dispute, controversy or claim arising out of or in connection with this Agreement, including any dispute concerning its formation, validity, interpretation, franchise fees, royalties, brand standards, territorial rights, supply obligations, competition restrictions, intellectual property, breach, termination, post-termination obligations or damages, shall be finally resolved under the Istanbul Arbitration Centre Arbitration Rules.

The seat of arbitration shall be Istanbul, Türkiye. The tribunal shall consist of three arbitrators. The language of arbitration shall be English. Turkish law shall govern the merits of the dispute.

The parties may also state expressly that applications for interim injunctions, trademark protection, evidence preservation or attachment do not constitute a waiver of arbitration.

Annulment and Enforcement

A Turkey-seated award is not subject to an ordinary appeal merely because one party disagrees with the tribunal’s interpretation of the franchise agreement.

Annulment is limited to statutory grounds such as:

• Invalidity of the arbitration agreement;
• Improper tribunal constitution;
• Excess of jurisdiction;
• Serious procedural irregularity;
• Violation of equality or the right to be heard;
• Non-arbitrability;
• Public policy.

The reviewing court should not ordinarily repeat a royalty audit, reconsider the commercial seriousness of an inspection failure or substitute its own view of the evidence.

A qualifying foreign franchise award may be recognised and enforced in Türkiye under the New York Convention or applicable Turkish private international law, subject to limited refusal grounds.

Practical Franchise Agreement Checklist

Before signing a franchise agreement connected with Türkiye, the parties should determine:

1. Which trademarks and business systems are licensed;
2. Whether the territory is exclusive;
3. How internet and passive sales are treated;
4. What the initial fee covers;
5. How royalties are calculated;
6. Whether minimum royalties apply;
7. How marketing contributions are used;
8. Which accounting and audit rights exist;
9. What brand standards apply;
10. How standards may be changed;
11. Which suppliers must be used;
12. How supply shortages are handled;
13. Which training and support services are required;
14. Whether resale-price provisions comply with competition law;
15. The scope and duration of non-compete obligations;
16. Which breaches permit immediate termination;
17. Which breaches require a cure period;
18. What happens to stock and equipment after termination;
19. How trademarks and confidential information must be returned;
20. Whether equalisation compensation may arise;
21. Which related parties are bound by arbitration;
22. The institution, seat and language;
23. Whether emergency arbitration applies;
24. Where the award may need to be enforced.

Frequently Asked Questions

Can a franchise dispute be arbitrated in Türkiye?

Yes. Private contractual disputes concerning royalties, brand standards, exclusivity, termination, supply, confidentiality and damages are generally capable of arbitration where a valid written arbitration agreement exists.

Is franchising governed by a separate Turkish Franchise Act?

The entire franchise relationship is not governed by a single dedicated statutory regime. Different components are assessed under general contract law, commercial law, intellectual property law, competition law and arbitration legislation.

Can the franchisor impose brand standards?

Yes. Operational and quality standards are central to many franchise systems. Trademark law also requires the licensor to take measures to guarantee the quality of licensed goods and services. The standards should nevertheless be clear, proportionate and applied consistently.

Can a franchisor fix the franchisee’s resale prices?

Fixed or minimum resale-price restrictions generally create serious competition-law concerns. Genuine recommended or maximum prices may be possible where pressure or incentives do not convert them into fixed prices.

Can a franchisee be prohibited from selling outside its territory?

Certain targeted active sales may be restricted within the applicable competition framework. Broad restrictions on passive sales or ordinary responses to unsolicited customer requests may remove the agreement from the block exemption.

Can a franchisee be prevented from competing during the agreement?

Potentially. A restriction necessary to preserve the common identity, reputation and know-how of the network may be permissible, particularly where it does not exceed the franchise term. The precise scope and market effect must still be assessed.

How long can a post-termination non-compete last?

For purposes of the vertical block exemption, a limited exception may permit a restriction of up to one year where it is confined to the former premises, concerns competing goods or services and is necessary to protect transferred know-how. Broader restrictions require separate legal analysis.

Can confidential know-how remain protected after termination?

Yes. A prohibition on using or disclosing know-how that has not entered the public domain may continue independently from a broader commercial non-compete restriction.

Can the franchisee use the trademark after termination?

Ordinarily, no. The right to use the brand generally ends with the licence, subject to any expressly agreed sell-off or transition period. Continued unauthorised use may create contractual and trademark liability.

Can a franchisee claim customer portfolio compensation?

Possibly, but not automatically. Article 122 of the Turkish Commercial Code extends equalisation principles to certain exclusive distribution and similar continuing monopoly relationships where equitable. Whether the rule applies to a particular franchise depends on the contract and economic structure.

Can urgent protection be obtained before appointment of the tribunal?

Yes. Depending on the clause and applicable rules, a party may apply to an emergency arbitrator or competent court for interim protection.

Is ISTAC suitable for franchise disputes?

Yes. Parties may refer franchise disputes to ISTAC and specify the seat, language, number of arbitrators, governing law and emergency arbitrator mechanism.

Can a foreign franchise award be enforced in Türkiye?

A qualifying foreign award may be recognised and enforced under the New York Convention or Turkish private international law, subject to limited refusal grounds.

Conclusion

Franchise arbitration in Turkey can provide an effective mechanism for resolving disputes concerning brand standards, royalties, territorial rights, supply obligations and termination.

Franchise relationships are legally complex because they combine:

• Trademark licensing;
• Operational know-how;
• Product supply;
• Continuing commercial support;
• Quality supervision;
• Competition restrictions;
• Long-term investment.

The agreement should define the commercial system precisely.

Royalty provisions should explain the sales base, deductions, reporting periods and audit rights. Brand standards should be measurable, and the contract should distinguish minor deficiencies from breaches justifying immediate termination.

Territorial exclusivity should address direct, affiliate, online and passive sales. Competition-law restrictions concerning resale pricing, sourcing and non-compete obligations should be reviewed before implementation.

Termination provisions should identify:

• Notice requirements;
• Cure periods;
• Serious breaches;
• Post-termination de-branding;
• Inventory and equipment;
• Confidential information;
• Customer data;
• Trademark use;
• Non-compete obligations.

Customer portfolio compensation may arise in certain franchise structures, particularly where the relationship resembles an exclusive and continuing monopoly arrangement and the franchisor retains substantial benefit from the franchisee’s customers. The claim remains fact-specific and is not an automatic consequence of termination.

The arbitration clause should cover the entire lifecycle of the relationship, including fees, standards, supply, intellectual property, competition restrictions, termination and post-contractual obligations.

All related agreements—such as guarantees, trademark licences, supply contracts, leases and software agreements—should use compatible dispute resolution provisions where possible.

Once a dispute becomes foreseeable, the parties should preserve point-of-sale records, inspection reports, warnings, customer data, supplier correspondence and evidence of investment. These records often determine whether termination was justified and how damages should be calculated.

For franchisors, master franchisees, unit franchisees and international brands operating in Türkiye, specialised Turkish franchise and arbitration counsel can assist with contract drafting, competition compliance, urgent injunctions, royalty audits, termination strategy and enforcement of arbitral awards.