Art. 1219
Civil Code article that lets a party refuse to perform where the other's non-performance is sufficiently serious — the basis for withholding royalties
5–10%
Typical exploitation royalty, usually indexed on the franchisee's turnover, paid as the counterpart of the franchisor's services
1–2%
Typical advertising royalty, which must be spent on advertising or it masks unjust enrichment and can be placed under escrow

When can a French franchisee withhold royalties?

A franchisee may withhold royalties in a French franchise when the franchisor stops providing the services those royalties are meant to pay for. Royalties are not a rent for the mere fact of belonging to a network. They are the counterpart of concrete obligations the franchisor has undertaken — transmitting and updating its know-how, making its trademark and signs available, and, above all, assisting the franchisee throughout the life of the contract. Where that counterpart is not delivered, the franchisee is entitled to suspend payment of all or part of the royalties. The legal instrument is the defence of non-performance (exception d'inexécution), codified in Article 1219 of the Civil Code.

This is a right to be used with precision, not a self-help remedy to be reached for at the first grievance. Non-payment of royalties is, in the ordinary case, a serious breach by the franchisee — the kind of breach that lets the franchisor terminate the contract at the franchisee's fault. It only ceases to be a breach, and becomes a lawful suspension, where the franchisor has itself failed to perform its own obligations to a degree that is sufficiently serious to justify the riposte. Read that condition the wrong way, or move without evidence, and the franchisee converts a defensible position into a default of its own.

For the franchisor, the mirror-image exposure is just as real. A network head that lets its assistance lapse, that finances its own projects out of the advertising royalty, or that treats the exploitation royalty as an unconditional entitlement cannot assume the money will keep arriving.

Royalties in a French franchise are the counterpart of the franchisor's services

The starting point for any decision to withhold royalties in a French franchise is what the royalties actually pay for. A franchise contract is bilateral: it creates obligations on both sides. In consideration of what the franchisor undertakes, the franchisee assumes a set of financial obligations, usually structured under three heads. An initial lump-sum fee, the entry fee (droit d'entrée), pays for access to the network. An exploitation or franchise royalty (redevance d'exploitation) 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.

The exploitation royalty is the one most directly tied to ongoing performance. It may be a flat figure, though 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. More often it is indexed on the turnover the franchisee generates, generally between five and ten per cent, or on a sliding scale by turnover band. Whatever its form, its function is fixed: it remunerates the services the franchisor provides while the contract runs. Royalties must not turn into a rente de situation — a guaranteed income divorced from any counterpart. 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 flows from the ordinary law of contract as much as from the economics of the model. 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; Article 1104 makes performance in good faith a matter of public policy; and Article 1194 binds each party not only to what the contract expressly states 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 they buy is not performing the bargain those articles protect.

The rule in one line

Royalties are the counterpart of the franchisor's services. Where those services are not or are no longer provided, the franchisee may suspend payment of the royalties. Suspension is a response to a failure of counterpart — never a bargaining tactic in search of one.

What the exploitation royalty covers is not open-ended. A sensible line separates the assistance naturally owed to every franchisee from help required by exceptional circumstances. The royalties are understood to cover the ordinary interventions — help in implementing the concept, the network's communication and advertising campaigns, the monitoring of management ratios — that are as normal as they are foreseeable in a franchise. It is the failure to deliver that recurring support that opens the door to suspension.

The defence of non-performance: the lawful basis to withhold royalties

The mechanism that lets a franchisee lawfully withhold royalties in a French franchise is the defence of non-performance under Article 1219 of the Civil Code. That article allows a party to refuse to perform its own obligation, even though the obligation is due, where the other party does not perform its own and the non-performance is sufficiently serious. Applied to a franchise, it means the franchisee may refuse to pay royalties that are otherwise due and payable if it can show that the franchisor is refusing to perform — loyally and effectively — the obligations for which those royalties are the consideration.

Two conditions govern the defence, and both must be respected. First, seriousness: the franchisor's failure must be sufficiently grave. A minor or isolated shortcoming does not license the franchisee to stop paying; the defence answers a real breach of counterpart, not a quibble. Second, proportionality between the response and the breach. The franchisee is entitled to withhold all or part of the royalties, and the choice between the two is not free — it must track the gravity and the scope of the franchisor's default. Where the failure is partial, a proportionate response is to withhold part; a total suspension in the face of a partial failure risks being judged excessive, and an excessive riposte is itself a breach.

The defence sits alongside the other remedies a franchisee holds when the franchisor fails to perform. Faced with a breach of the assistance obligation, the franchisee may invoke the defence of non-performance, but it may equally seek specific performance, claim damages for the loss suffered, seek a reduction of its royalties to reflect the diminished service, or, in a serious enough case, pursue termination. The defence is the self-standing, immediate response: it does not require a prior court order, because it operates as a temporary suspension pending performance. That is its strength and its danger. It works without a judge, which means the franchisee bears the risk of having judged the seriousness correctly.

Related reading

The obligations the royalties buy are set out in our article on the six essential obligations of a French franchisor. The financial architecture — entry fee, exploitation royalty, advertising royalty — is covered in our article on franchise royalties and fees. The scope and intensity of the duty to assist are treated across our material on the franchisor's assistance obligation.

Failed assistance is the clearest ground to withhold royalties

The strongest ground to withhold royalties in a French franchise is a failure of the franchisor's assistance. Assistance is one of the essential obligations of the franchisor — French courts have held that the duty to assist the franchisee is an essential obligation independent of any specific contractual stipulation. It is owed whatever the wording, or the silence, of the contract the franchisor itself drafted. It is continuous, not occasional: the franchisor must help at start-up and in difficulty, but also, steadily, throughout the performance of the contract. And it has at least a double dimension, commercial and technical.

Because assistance is an essential obligation, its non-performance is by nature sufficiently serious within the meaning of Article 1219. This is the pivotal point for a franchisee weighing a suspension. The franchise contract provides that the franchisee pays for the know-how transmitted to it, the right to use the mark, and the services the franchisor supplies over the life of the contract. Where the head of the network refuses to perform its assistance obligation loyally and effectively, the franchisee is entitled to retain payment of all or part of the royalties, even though they are due. The seriousness prong of the defence is, in effect, presumed satisfied by the essential character of the obligation breached.

What counts as a failure of assistance is not confined to doing nothing. A franchisor does not discharge the obligation by putting up a façade of support. Sending an inexperienced, ill-equipped field manager who cannot answer the franchisee's difficulties is not assistance. Responding to a chronic profitability problem in the concept by handing over free stock now and then, or waiving a few months of royalties, is not assistance either — it may relieve the franchisee's cash position for a moment, but it does nothing about the underlying problem. The obligation, properly understood, is to intervene, and to intervene effectively: to take measures genuinely matched to the need the franchisee has expressed.

The franchisee must play its own part before it can complain, calling on the franchisor appropriately — neither too early, before it has tried to correct the difficulty itself, nor too late, when the franchisor can no longer intervene usefully. But the franchisor is not entitled to sit and wait to be summoned. It has a heightened duty of vigilance, because it has the means of vigilance: every franchise contract requires the franchisee to report its monthly turnover and annual accounts, and the franchisor sends field managers to inspect the outlet. Informed in real time of the franchisee's situation, it must intervene without delay. A franchisor that ignores what its own reporting and visits tell it is the one exposed to a lawful suspension.

Withholding the advertising royalty in a French franchise

The advertising royalty deserves separate treatment when a franchisee considers whether to withhold royalties in a French franchise, because it is subject to a specific constraint: the sums collected under it must be used for advertising. The advertising royalty is usually a percentage of turnover — often one or two per cent — and is the customary vehicle for funding national advertising, with local advertising typically borne by the franchisee directly. Its defining feature is its earmarked purpose. Money raised as an advertising royalty and spent on something else does not merely disappoint the franchisee; it masks an unjust enrichment of the franchisor.

That earmarking is why transparency weighs so heavily on the franchisor here. The contracts are often incomplete on the point: few require the franchisor to account for the advertising actions it has taken, even though the franchisee funds them through the royalty and cannot otherwise verify that the corresponding obligation has been performed. A minimum of transparency should follow from the very nature of the franchise and the equity that attaches to it. A regular rendering of accounts is owed, and where it is missing the franchisee is not left without recourse.

Two remedies address the misused advertising royalty. First, the franchisee can ask the court to order that the royalties be placed under escrow (séquestre) — sequestered, so that the funds are preserved and cannot be diverted while the dispute over their use is resolved. Second, a suspension of payment should equally be available on the footing of the defence of non-performance: if the franchisor is not spending the advertising royalty on advertising, or cannot show that it is, the franchisee may invoke Article 1219 to withhold it. The advertising royalty thus illustrates the general rule in a sharpened form — a royalty tied to a defined purpose, withheld or sequestered when that purpose is not served.

Escrow or suspension

Where advertising royalties are not demonstrably spent on advertising, a franchisee has two routes: apply to the court for the sums to be placed under escrow, or suspend payment under the defence of non-performance. Escrow preserves the money under judicial control; suspension keeps it in the franchisee's hands. Each answers the same failure to account.

Withholding royalties before the franchisor's default: Article 1220

The Civil Code also provides a preventive way to withhold royalties in a French franchise, before the franchisor's non-performance has actually occurred. Article 1220 allows a party to suspend the performance of its own obligation where it is manifest that the other party will not perform when performance falls due, and where the consequences of that failure would be sufficiently serious for the party invoking it. This is the anticipatory cousin of the defence of non-performance in Article 1219: instead of responding to a breach that has happened, it responds to a breach that is plainly coming.

The preventive defence is hedged with its own conditions. The prospect of non-performance must be manifest — not feared or suspected, but evident on the facts. The suspension must be notified to the other party; the franchisee cannot simply go silent. And the same seriousness threshold applies: the anticipated consequences must be grave enough to warrant suspending in advance. Within those limits, Article 1220 lets a franchisee that can see the franchisor heading for a default — an assistance structure being dismantled, a supply chain visibly collapsing — hold back its royalties rather than pay into a service it is manifest will not be delivered.

In practice, the preventive defence is harder to justify than the ordinary one, because it turns on a prediction the franchisee must be able to substantiate. The two are best seen as a sequence: Article 1220 for the manifest, imminent failure; Article 1219 once the failure has materialised. Both demand the same discipline — seriousness, proportionality, and a record that supports the judgement the franchisee has made.

The risk of wrongly withholding royalties in a French franchise

The danger in withholding royalties in a French franchise is that an unjustified suspension is itself a breach — and a serious one. Non-payment of royalties, in a contract the network head is performing normally, is a grave failure on the franchisee's part, and the defence of non-performance is the only thing that converts that failure into a lawful act. If the conditions of the defence are not met — if the franchisor was in fact performing, or its shortcoming was not sufficiently serious, or the response was disproportionate to it — then the suspension is not a defence at all. It is a default, and it can justify termination at the franchisee's fault, with the franchisee exposed to the arrears and to the consequences of an early end to the relationship.

An unjustified suspension is a breach

Stop paying royalties without a sufficiently serious, provable failure by the franchisor — or withhold the whole royalty where only part is warranted — and the suspension becomes the franchisee's own breach. That breach can justify termination of the contract against the franchisee. The defence of non-performance protects a measured, evidenced response; it offers nothing to an unmeasured one.

Two errors account for most failed suspensions. The first is misjudging seriousness: treating an ordinary friction, or a matter outside what the royalties actually cover, as though it were a breach of an essential obligation. The second is misjudging proportion: suspending the entire royalty when the franchisor's failure justifies withholding only part. Because the defence must be proportionate to the breach, an all-or-nothing reaction to a partial default is vulnerable.

There is a further, quieter risk on the other side of the ledger: delay. A franchisee that suffers a breach and says nothing may find its silence held against it. Although a waiver of rights is never presumed, courts have on occasion opposed to a franchisee its own lethargy — its failure to voice discontent when the breach occurred. The franchisee that intends to rely on the franchisor's non-performance should manifest its dissatisfaction immediately and in writing, rather than accumulating grievances quietly and producing them only once the relationship has broken down.

How to withhold royalties in a French franchise, step by step

A franchisee that has grounds to withhold royalties in a French franchise should proceed in a way that preserves the defence rather than forfeits it. The assistance obligation is, as to its effects, tested against what the franchisor did with the means it had; the franchisee that alleges a failure must prove it. Everything therefore turns on the record. The sequence below reflects the discipline the defence of non-performance demands.

Step 1
Identify the unperformed counterpart
Pin the suspension to a specific obligation the royalties pay for — assistance, know-how, the availability of the mark — and to a specific failure to deliver it. The clearer the link between the royalty and the missing service, the stronger the defence. A generalised dissatisfaction is not a ground; an identified, unmet obligation is.
Step 2
Call on the franchisor and record it
Summon the franchisor to perform — appropriately, neither prematurely nor too late — and do so in writing. Set out the difficulty, the assistance sought, and a reasonable time to act. This both gives the franchisor the chance to cure and creates the contemporaneous evidence that the franchisee raised the matter when it arose rather than long after.
Step 3
Assemble the evidence of failure
Document the franchisor's shortcomings: the visit reports (comptes rendus de visite) that should be written, contradictory, and signed by both field manager and franchisee; the unanswered requests for help; the missing advertising accounts; the reporting the franchisor received and ignored. The franchisee bears the burden of proving the breach, so the file must be built before the suspension, not after.
Step 4
Calibrate the suspension to the breach
Decide whether to withhold all or part of the royalties by reference to the gravity and the scope of the franchisor's failure. Where the failure is partial, withhold part. A response proportionate to the breach is protected; a disproportionate one is exposed. Keep the advertising royalty analytically separate — its misuse is met by escrow or by suspension on its own footing.
Step 5
Notify the suspension in writing
Tell the franchisor, in writing, that payment is being suspended, on what ground, and for what failure — invoking the defence of non-performance. Notification is essential to the preventive variant under Article 1220 and is prudent in every case: it frames the suspension as a measured legal response, not an unexplained default, and it puts the franchisor on notice that performance will restore payment.
Step 6
Preserve the option to escalate or resolve
The defence is a suspension, not an ending. Keep the escalation routes open — specific performance, damages, a reduction of royalties reflecting the diminished service, escrow of advertising royalties, or, if the breach is grave enough, termination. Take advice before converting a suspension into a demand to end the contract, because the choice of remedy shapes the exposure on both sides.
Suspending royalties without triggering your own default

We assess whether a franchisor's failure is serious enough to support the defence of non-performance, calibrate how much of the royalty may be withheld, and build the evidential file before payment stops. We act for franchisees suspending royalties and for franchisors defending against unjustified suspensions.

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Frequently asked questions about withholding royalties in a French franchise

Can a French franchisee simply stop paying royalties if it is unhappy?

No. Unhappiness is not a ground. A franchisee may withhold royalties only where the franchisor has failed to perform an obligation the royalties are the counterpart of, and where that failure is sufficiently serious under Article 1219 of the Civil Code. Absent a serious, provable failure of counterpart, non-payment is itself a breach that can justify termination against the franchisee.

What is the exception d'inexécution in a franchise?

It is the defence of non-performance, codified in Article 1219 of the Civil Code. It lets one party refuse to perform its own obligation — here, paying royalties — where the other's non-performance is sufficiently serious. It operates without a prior court order and suspends the obligation pending performance, which is why it must be used only when the conditions are genuinely met.

Does a failure of assistance justify withholding royalties?

Yes, and it is the clearest ground. Assistance is an essential obligation of the franchisor, independent of any specific contractual stipulation. Because it is essential, its non-performance is by nature sufficiently serious within the meaning of Article 1219. A franchisee that can show the franchisor is refusing to perform its assistance obligation loyally and effectively may retain payment of all or part of the royalties.

Can a franchisee withhold only part of the royalties?

Yes, and often it should. The defence of non-performance must be proportionate to the breach. Where the franchisor's failure is partial, the proportionate response is to withhold part of the royalties. Suspending the whole royalty in the face of a partial failure risks being judged excessive, and an excessive response is itself a breach.

What can a franchisee do about advertising royalties that are misused?

Advertising royalties must be spent on advertising; otherwise they mask an unjust enrichment. If the franchisor cannot show the money was used for advertising, the franchisee can ask the court to place the royalties under escrow, or can suspend payment on the footing of the defence of non-performance. The franchisor owes a regular rendering of accounts for the advertising it funds through the royalty.

Can a franchisee withhold royalties before the franchisor has actually defaulted?

Yes, in narrow circumstances. Article 1220 of the Civil Code allows a party to suspend performance where it is manifest that the other will not perform at term and the consequences would be sufficiently serious. The prospect must be manifest, the suspension must be notified, and the anticipated consequences grave. It is harder to justify than the ordinary defence because it rests on a prediction the franchisee must substantiate.

What happens if the franchisee gets the suspension wrong?

An unjustified suspension is a breach by the franchisee. If the franchisor was in fact performing, or its shortcoming was not sufficiently serious, or the response was disproportionate, the suspension is not a defence but a default — and it can justify termination of the contract at the franchisee's fault, together with liability for the withheld royalties.

Key takeaways on withholding royalties in a French franchise

In brief
Royalties are the counterpart of the franchisor's services — assistance, know-how, the mark. Where those services are not or are no longer provided, the franchisee may suspend payment.
The lawful basis is the defence of non-performance, Article 1219 of the Civil Code: refuse to perform where the other party's non-performance is sufficiently serious, and only in proportion to it.
A failure of assistance is the clearest ground: because assistance is an essential obligation, its non-performance is by nature sufficiently serious to justify withholding all or part of the royalties.
The advertising royalty must be spent on advertising. If it is not, the franchisee can have it placed under escrow or suspend it under the defence of non-performance.
Article 1220 allows a preventive suspension where it is manifest the franchisor will not perform at term — but the prospect must be manifest and the suspension notified.
An unjustified or disproportionate suspension is itself a breach that can justify termination against the franchisee. Document the franchisor's failures and calibrate the response before payment stops.

How our French lawyers can help with withholding royalties in a French franchise

Deciding whether to withhold royalties in a French franchise is a judgement about seriousness, proportion, and proof — made under the pressure of a live relationship, with a real risk of converting a defensible position into a default. Our firm advises both sides. For franchisees, we assess whether the franchisor's failure — a lapse in assistance, a misused advertising royalty, a service no longer delivered — is serious enough to support the defence of non-performance, calibrate how much of the royalty may lawfully be withheld, build the evidential file, and notify the suspension in terms that frame it as a measured legal response.

For franchisors, we act from the other direction: reviewing whether a franchisee's suspension is justified, demonstrating performance of the assistance and advertising obligations, and pursuing termination and recovery where a suspension is in truth an unjustified default. We also structure royalty and advertising clauses, and the reporting around them, so the counterpart of the royalties is defined and evidenced from the outset. Whether the question is when to stop paying or how to answer a franchisee that has stopped, we advise before the position hardens.

This article is for general information only. It does not constitute legal advice. Whether a franchisee may lawfully withhold royalties depends on the terms of the specific contract, the seriousness of the franchisor's failure, and the evidence available, and an unjustified suspension carries real consequences. Contact our French lawyers for qualified advice before suspending or demanding royalties in a French franchise.