Franchise Royalties in France: Entry, Exploitation and Advertising Fees Explained

Franchise royalties in France: the three financial obligations of the franchisee

Franchise royalties in France are structured under three heads, and a franchisee entering a French network takes on all three at once. A franchise contract is bilateral: in consideration of what the franchisor undertakes, the franchisee assumes a series of financial obligations whose detail is set by the contract. In the usual case they are stipulated at three levels. An initial lump-sum fee — the entry fee (droit d'entrée, or redevance initiale forfaitaire) — pays for access to the network. An exploitation or franchise royalty (redevance d'exploitation, or redevance de franchise) pays for the services the franchisor renders over the course of the contract. And an advertising royalty (redevance de publicité) funds the promotion of the network. Together these are the price of belonging to the network and drawing on its concept.

The three fees are not interchangeable, and the distinctions between them decide where money can lawfully flow and where a franchisee can push back. The entry fee is paid once, up front, and is freely set. The exploitation royalty runs for the life of the contract and is the fee most tightly bound to the franchisor's continuing performance. The advertising royalty is ring-fenced: it may be spent on advertising and nothing else. One principle governs all three: each royalty must answer to a concrete counterpart. Franchise fees in France are not a rent for the mere fact of carrying the brand; they are the consideration for defined obligations the franchisor has undertaken, and where the counterpart fails, the franchisee's obligation to pay is not unconditional.

The entry fee: the price of access to a French franchise network

The entry fee is the initial lump-sum payment traditionally called the droit d'entrée, and its function is precise: it is the price of access to the network. The franchisee pays it once, at the outset, to be admitted to the concept — the brand, the signs, the know-how, and the collective dynamic the network offers. Its amount is variable, because contractual freedom governs. There is no statutory tariff and no ceiling. A franchisor is free to set the entry fee where it chooses, and a candidate is free to negotiate it or to walk away. What matters is that the candidate understands what the figure buys before committing to it.

Because the entry fee is the price of access, its legitimacy has been questioned in two situations where no fresh access is being granted. The first is renewal. When a franchisee renews an existing contract, it does not gain access to a network or to a franchisor's know-how it already knows — so some have contested a franchisor's right to charge a second entry fee on renewal. The counter-argument is practical and carries weight: forbidding any further payment on renewal would give the franchisor an incentive to look for a new franchisee at the contractual term rather than renew the incumbent, which serves no one. The sounder course is not a blanket rule but a clear clause: the parties should say, in advance, whether renewal triggers a further entry fee and on what basis.

The second situation is a second outlet. Where an existing franchisee opens an additional point of sale within the same network, is a fresh entry fee due? For the same reason, it is not sound to lay down a rule that no new entry fee may be charged. The better approach again is to leave it to contractual freedom and to the clauses the parties are well advised to draft on these sensitive points. A franchisee planning to expand should settle the question at the first signature, not discover it at the second.

Two further features of the entry fee deserve a franchisee's attention. First, a young network sometimes waives the entry fee for its first franchisees. The exception is defensible: by definition the first arrivals are, to a degree, test subjects, and a waiver reflects the additional risk they carry in joining a concept that has not yet been proven across a network. Second, and more consequential, is the fate of the standard clause providing that the entry fee "remains acquired" to the franchisor whatever the outcome of the contract. That clause does not survive an annulment. Where the franchise contract is annulled, the retention clause suffers the same fate as the contract itself: it falls with it, and the franchisor cannot invoke it to keep the entry fee. A "remains acquired" clause protects the franchisor against ordinary termination scenarios; it does not protect against a finding that the contract should never have existed.

The exploitation royalty: franchise royalties in France as a share of turnover

The exploitation royalty — the redevance d'exploitation or redevance de franchise — is the fee that remunerates the services the franchisor provides throughout performance of the contract. Of the three franchise royalties in France it is the one most directly tied to the franchisor's ongoing conduct, and it is usually the largest. It may be structured as a flat figure, but a purely fixed royalty is not always a good sign: it can signal a franchisor trying to insulate itself from the risk of its own concept, collecting a guaranteed sum whether or not the model performs. More often the exploitation royalty is indexed on the turnover the franchisee generates — generally between five and ten per cent, or on a sliding scale that steps down across turnover bands (a degressive royalty that falls as the franchisee's turnover rises).

Where the royalty is a percentage of turnover, the definition of the turnover base is where disputes concentrate, and a candidate joining the network is well advised to verify that definition before signing. The question is which receipts count. On this point the Paris Court of Appeal has held that there is in principle no ground to deduct, from the turnover base, the commissions the franchisee pays to the aggregators and platforms it uses. In other words, a franchisee selling through a delivery or marketplace platform pays the exploitation royalty on the gross turnover, not on the net figure remaining after the platform has taken its cut. For a franchisee operating on thin margins with heavy platform commissions, that is a material exposure, and it is one to price in at the outset rather than argue about later.

The mechanics of payment carry their own traps. The contract fixes how the royalty is paid, and some methods — though rare — are particularly dangerous. Chief among them is a royalty stipulated payable by bill of exchange (an effet de commerce). A franchisee who accepts payment of royalties by bill of exchange becomes subject to the rigours of the law of negotiable instruments, which strips away defences the franchisee would otherwise hold. Payment by bill of exchange should be treated with suspicion and, ordinarily, resisted.

Two further points of caution attach to the exploitation royalty. The first concerns the franchisor's power to police the base. Clauses by which the franchisor reserves a right to control the base of proportional royalties deserve attention: information technology increasingly enables new forms of intrusion, and the line between legitimate verification and interference in the franchisee's business is not always far apart. A balance has to be struck, and a franchisee should read any audit or monitoring clause with that risk in mind. The second is the rate itself. The Cour de cassation has accepted that a franchisor may reserve a unilateral power to modify the rate of the royalties — a solution that is hazardous from an economic standpoint and that a franchisee should approach with real caution. It sits in tension with the force of the contract: under Article 1103 of the Civil Code a validly formed contract has the force of law between the parties and cannot in principle be modified unilaterally, and any reserved power of unilateral modification must remain controlled so that, under cover of adaptation, the franchisor does not upset the general economy of the partnership.

Whatever its form, the exploitation royalty has one fixed function: it is the counterpart of the services the franchisor renders while the contract runs. Royalties must not turn into a guaranteed income divorced from any counterpart — a rente de situation. They are the price of services that ought to be defined with precision in the contract, and where those services are not or are no longer provided, the franchisee may suspend its payments. That principle is developed below, and it is the subject of a dedicated companion article on withholding royalties.

The advertising royalty: funding national promotion in a French franchise

The advertising royalty — the redevance de publicité — is the third of the franchise fees in France, and it is the most tightly constrained. The contract generally stipulates an advertising royalty, and, as with the exploitation royalty, it is almost always a percentage of turnover — commonly one or two per cent. Its usual purpose is to fund national advertising: the network-wide campaigns that promote the brand across the market. Local advertising, by contrast, is typically borne directly by the franchisee, who funds promotion in its own catchment area out of its own resources. A franchisee should therefore read the advertising royalty as paying for the national layer of promotion, not as covering everything the franchisee does to draw customers in its own zone.

The defining feature of the advertising royalty is that the sums collected under it must be used for advertising purposes. That is not a soft expectation; it is the condition of the fee's legitimacy. If the money is not spent on advertising, the royalty masks an unjust enrichment of the franchisor. This is why transparency is imposed on the franchisor's side and why a regular rendering of accounts is required: the franchisee is entitled to know that the advertising royalties it pays have in fact been deployed on advertising. The difficulty in practice is that many contracts are incomplete on precisely this point. Few impose on the franchisor an obligation to account for the promotional actions it has taken, with the result that franchisees pay an advertising royalty without being able to verify that the corresponding obligation has been performed. A minimum of transparency ought to follow from the nature of the franchise contract and, at the least, from the equity that attaches to it.

Where the franchisor does not account for the advertising royalty, the franchisee is not without remedy. Two levers are available. First, the franchisee may obtain from the court an order placing the advertising royalties under escrow (séquestre), so the funds are held pending proof that they are being applied to advertising. Second, the franchisee should be able to suspend payment of the advertising royalty on the basis of the defence of non-performance (exception d'inexécution) under Article 1219 of the Civil Code, where the franchisor fails to deliver the advertising the royalty is meant to fund. Both remedies flow from the same premise: an advertising royalty that is not spent on advertising is a fee without a counterpart.

The demand for a dedicated bank account and an annual justification is the operational answer to the transparency problem. A dedicated account keeps the advertising royalties separate from the franchisor's general resources, so it can be shown that the fund has not been diverted; an annual accounting gives the franchisee the periodic proof the contract too often omits. Neither is a formality. They are the mechanisms that convert the principle — advertising royalties may be spent only on advertising — into something a franchisee can actually verify, and something a franchisor can be held to.

Comparing the three franchise royalties in France

The three franchise royalties differ in what they buy, how they are calculated, what they may fund, and where they are contested. Reading them side by side clarifies why a franchisee's arguments differ from one fee to the next: the entry fee is attacked on annulment and on the legitimacy of a second charge, the exploitation royalty on its base and its mechanics, and the advertising royalty on the use of the fund. The table below sets out the comparison.

Every franchise royalty in France needs a concrete counterpart

The unifying rule across all three franchise fees in France is that each must correspond to a concrete counterpart, failing which the franchisee's duty to pay is not absolute. Royalties are the consideration for services that ought to be defined with precision in the contract; they are not a toll levied for the bare fact of belonging to the network. Where the services are not, or are no longer, provided, the franchisee may suspend its payments. That is true of the exploitation royalty, whose function is to remunerate the franchisor's ongoing services, and it is true of the advertising royalty, whose sums must be applied to advertising or return to the franchisee's control through escrow or suspension.

The legal footing for this is the ordinary law of contract. Under Article 1103 of the Civil Code a validly formed contract has the force of law between the parties, and neither side may modify it unilaterally. Under Article 1104 the contract must be performed in good faith, a rule of public policy. And under Article 1194 the contract binds the parties not only to what they have expressly stated but to all the consequences that equity, usage, and the law attach to the obligation according to its nature. A franchisor that collects royalties while withholding the services those royalties buy is not performing the bargain those articles protect, and its royalty entitlement is correspondingly vulnerable. Where the franchise contract is a contract of adhesion drafted by the franchisor — as it usually is — Article 1190 adds that, in case of doubt, its terms are construed against the party that proposed them, that is, against the franchisor and in the franchisee's favour.

The remedies available to a franchisee facing a failure of counterpart are not limited to non-payment. Confronted with a breach — of the assistance obligation, for instance — the franchisee may invoke the defence of non-performance (exception d'inexécution) under Article 1219 of the Civil Code, but it may equally seek specific performance, claim damages for the loss suffered, obtain a reduction of its royalties to reflect the diminished service, or, in a serious enough case, pursue termination. The defence of non-performance is the immediate, self-standing response: it operates without a prior court order, as a temporary suspension pending performance. That is both its strength and its risk, because the franchisee that suspends bears the burden of having judged the seriousness of the franchisor's breach correctly. A franchisee that misreads that threshold converts a defensible suspension into a default of its own, since non-payment of royalties is, in the ordinary case, a serious breach on the franchisee's side. One practical instinct follows: a franchisee that considers the franchisor is failing to perform should say so at once. Although a waiver of a right is never presumed, courts have on occasion held a franchisee's prolonged silence against it.

How franchise royalties in France match the franchisor's obligations

Franchise royalties in France are the mirror image of the franchisor's obligations, and the two cannot be read apart. The franchise contract is bilateral: it creates obligations on each side, and the franchisee's financial trilogy is the consideration for what the franchisor undertakes. The franchisor's essential obligations are more numerous than the familiar shorthand suggests. They are not confined to transmitting and updating the know-how, making the distinctive signs available, and furnishing assistance. Three further obligations are equally fundamental — advertising, diligence, and consistency across the network — and together they form the set of six essential obligations for which the royalties are paid.

Reading the fees against the obligations shows why each fee is anchored where it is. The exploitation royalty answers to the franchisor's continuing duties: to transmit and continuously update the know-how in good time, to keep the trademark and signs secured and available, and above all to assist the franchisee throughout the contract — the duty of assistance being, as the courts have held, an essential obligation of the franchisor independent of any specific contractual stipulation. The advertising royalty answers to the franchisor's advertising obligation: the network head bears responsibility for the image of the network and must not only defend it but promote it, which is precisely what the advertising royalty funds. When a franchisee questions a royalty, the sharper question underneath is usually whether the matching obligation is being performed.

This alignment is also why the diligence obligation matters to a franchisee weighing what it pays. The franchisor is, by definition, the specialist in its concept, and as a professional it owes a duty to be serious and competent. Franchisees pay an entry fee and royalties, and they do not pay for nothing — they are entitled to seriousness in return. A franchisor whose performance is careless engages its contractual liability, all the more so because its failures bear directly on the profitability of the network's outlets. The royalties, in short, are the price of a partnership the franchisor is bound to make work, not a subscription that runs regardless of what the franchisor does.

Franchise royalties in France and the network website

The most current flashpoint over franchise fees in France concerns the network website, and it turns on the advertising royalty. The exploitation of a merchant website within a franchise network falls within the franchisor's power — the network head manages the site, and the franchisor alone profits from the online channel unless the contract provides otherwise. That concentration of power raises a direct question about the advertising fund: can the advertising royalties the contract imposes on the franchisee be used to finance the creation and operation of the network's website? The question is live because the digitalisation of commerce has made the website a central asset, and because too many franchisors finance the creation and running of the site out of the advertising royalties, without the franchisees always being aware of it.

The governing principle is the one that defines the advertising royalty in the first place. If words are to keep their meaning, advertising royalties must be applied only to advertising expenditure. A franchisor may not, for example, fund the cost of an employee assigned to managing the website exclusively out of the advertising royalties. The advertising fund is not a general-purpose budget for the franchisor's digital ambitions; it is money the franchisee has paid for advertising, and diverting it to build or run the network's e-commerce site strains — and on the salaried-staffing example, breaches — the ring-fence that makes the royalty legitimate. Where a website is being built on the back of the advertising fund, the franchisee's transparency demands and the remedies of escrow and suspension come squarely into play.

The underlying tension is one of the reasons the digital shift unsettles the economics of franchising. The franchisee assumes the costs of running a physical outlet while the network's online sales are managed by, and may benefit, the franchisor alone; using the advertising royalty to fund the very website that channels those sales compounds the imbalance. The law does not yet resolve this in full, which is why the contractual safeguards around the advertising royalty — dedicated account, regular accounting, and a strict advertising-only ring-fence — carry so much weight, and why they should be negotiated hard at signature.

Frequently asked questions about franchise royalties in France

What are the three franchise royalties in France?

The three financial obligations of a French franchisee are the entry fee, which pays for access to the network; the exploitation or franchise royalty, which pays for the franchisor's services over the course of the contract; and the advertising royalty, which funds promotion of the network. The detail of each is set by the contract, but this trilogy is the standard structure of franchise fees in France.

How much is the entry fee for a French franchise?

There is no fixed amount. The entry fee is freely set, because contractual freedom governs; it is variable from one network to another. A young network sometimes waives the entry fee for its first franchisees, who carry the extra risk of joining an unproven concept. A candidate should confirm what the entry fee buys — access to the network, its signs, and its know-how — before paying it.

Can a French franchisor charge a second entry fee on renewal or for a second outlet?

Neither situation is prohibited and neither is automatic. Some have questioned a second entry fee on renewal, since the franchisee gains no fresh access; but forbidding it outright could discourage franchisors from renewing incumbents. The same reasoning applies to a second outlet. The sound course is to settle both questions in the contract at the first signature rather than leave them to argument later.

What percentage of turnover is a typical franchise exploitation royalty in France?

The exploitation royalty is usually indexed on the franchisee's turnover, generally between five and ten per cent, sometimes on a sliding scale that steps down across turnover bands. It can instead be a flat figure, but a purely fixed royalty is not always a good sign, as it may indicate a franchisor seeking to escape the risk of its own concept.

Can platform or aggregator commissions be deducted from the royalty base?

In principle, no. The Paris Court of Appeal has held that there is no ground to deduct, from the turnover on which the exploitation royalty is calculated, the commissions the franchisee pays to the aggregators and platforms it uses. The franchisee therefore pays the royalty on gross turnover, before the platform's cut — a point to verify and price in before signing.

What must the advertising royalty be spent on?

The advertising royalty may be spent only on advertising. If it is not, it masks an unjust enrichment of the franchisor. It commonly funds national advertising at one or two per cent of turnover, while local advertising is borne by the franchisee. A franchisee should demand a dedicated account and a regular, practically annual, justification of how the fund was used, and can seek an escrow order or suspend payment where the franchisor does not account for it.

Can a franchisee stop paying royalties in France?

Yes, in defined circumstances. Each royalty must correspond to a concrete counterpart. Where the franchisor's services are not or are no longer provided, the franchisee may suspend payment, relying on the defence of non-performance under Article 1219 of the Civil Code. The franchisor's breach must be sufficiently serious and the response proportionate; our companion article on withholding royalties sets out the conditions in detail.

Is it safe to accept royalties payable by bill of exchange?

It is dangerous. A royalty stipulated payable by bill of exchange subjects the franchisee to the rigours of the law of negotiable instruments, stripping away defences it would otherwise hold. This method, though rare, should be treated with suspicion and ordinarily resisted at the negotiation stage.

Key takeaways on franchise royalties in France

How our French lawyers can help with franchise royalties in France

The three franchise royalties in France look simple on the face of a contract and are anything but in operation. The entry fee turns on annulment and on whether a second charge is due; the exploitation royalty turns on the turnover base, the method of payment, and the franchisor's control over both; the advertising royalty turns on whether the fund is genuinely spent on advertising and accounted for. Each of these is a point where money is won or lost, and each is settled — or lost — in the drafting.

Our firm advises both franchisors and franchisees on franchise fees in France. For franchisors, we structure royalty clauses that are enforceable and transparent, including the accounting and dedicated-account safeguards that keep the advertising royalty above challenge. For franchisees and candidates, we review the royalty architecture before signature — flagging a base that includes platform commissions, payment by bill of exchange, a unilateral rate-change power, or a deferred entry fee — and we act when a fee is contested, whether by seeking escrow of a diverted advertising fund, suspending a royalty without counterpart, or recovering an entry fee on annulment.

This article is for general information only. It does not constitute legal advice. The treatment of the entry fee, exploitation royalty, and advertising royalty depends on the exact terms of your franchise contract and the circumstances of your network. Contact our French lawyers for qualified advice before signing a franchise agreement, changing a royalty structure, or acting on a decision to suspend or challenge any franchise royalty in France.