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Italy: Pre-contractual information obligations in the franchise contract

published on 18 March 2025 | reading time approx. 7 minutes

Although often underestimated, the phase preceding the stipulation of the franchise contract is in fact of fundamental importance, since it is precisely during this preliminary phase that the parties are required to exchange the information essential for the subsequent stipulation of the contract.

To further emphasize the importance of this preliminary phase, the Italian legislator saw fit to regulate it in Law No. 129 of 2004. With this regulatory intervention, the legislator wanted to create a balance between the figure of the franchisor and that of the franchisee, in order to rebalance the situation of information asymmetry that might otherwise arise.

This article is part of the article series “Franchising”. It is a cross border collaboration and is intended to highlight the key elements of a franchising agreement in selected countries. To the article series “Franchising” »

Duties of disclosure »
Market experimentation of the business formula »
What must be communicated to the prospective franchisee? »
Disclosure modalities »
Duty of disclosure for foreign franchisors »
Pre-contractual obligations of conduct »
What are the risks and possible consequences of failure to comply with the disclosure requirements? »
Best practices to follow to avoid breaches of pre-contractual obligations »

Indeed, if, on the one hand, the legislator has imposed on the franchisor the obligation to provide the potential franchisee with all the essential information for the conclusion of the franchise agreement, thus ensuring that the franchisee has access to all the useful information in order to carefully assess the convenience of the deal, on the other hand, however, it has introduced a defense mechanism aimed at preventing the franchisor from being exposed to adverse legal consequences for having provided the potential franchisee with confidential information inherent to its business.

Duties of disclosure

Thus, given the foregoing, it appears clear that the duty to disclose information relating to the franchisor's area of activity, the so-called duty of disclosure, constitutes one of the salient aspects in the field of franchising. Indeed, the seriousness of a franchise network is measured by the level of care and scrupulousness that the franchisor shows in compliance with the law. Essentially, therefore, the law requires the franchisor to provide the prospective franchisee with a range of information, which must be current, complete and truthful, in a predetermined manner and timeframe. Therefore, in order for the franchise agreement to be valid, it is necessary for the franchisee, to know all the economic, financial and legal elements underlying the franchise agreement before being contractually bound. The rationale of such a burden stems from the fact that the franchise agreement, by its very nature, is a very complex transaction, both in terms of economic burdens to be borne by the parties and in terms of obligations arising therefrom.

Market experimentation of the business formula

In terms of the current legislation, the first pre-contractual obligation imposed on the franchisor by Article 3(2) of Law 129/2004 is to have ‘experimented its business formula on the market’ before proposing it to the franchisees.

By the term ‘experimentation’ the legislator means that the business formula that the franchisor intends to propose must have already been carried out in the reference market for a sufficient period of time - quantified in at least one year - and must, of course, have produced a positive result.

Experimenting with the business formula in advance allows the franchisee to verify the reliability of any positive results, attainable through the quality and effectiveness of the business formula offered by the franchisor before committing himself by signing the contract and, in any case, before becoming part of the franchisor's articulated franchise network.

What must be communicated to the prospective franchisee?

In addition to the prior experimentation, the disclosure obligation is expressly regulated by Article 4 of Law No. 129/2004, pursuant to which, at least 30 days prior to the signing of the franchise agreement, the franchisor must provide the prospective franchisee with a complete copy of the franchise agreement to be signed, along with the following annexes:

an indication of the franchisor's main corporate data (i.e. company name, share capital and, upon request, a copy of the balance sheet for the last three years or from the date of commencement of business)
an indication of the trademarks used in the network, including registration details, or the trademark license granted to the franchisor by a third-party
a concise description of the elements characterizing the activity to be franchised
a list of the franchisees operating in the network and of the franchisor's direct outlets
a yearly indication of the change, in the number of franchisees and their relative locations
a summary description of the judicial or arbitration proceedings brought against the franchisor that have been concluded in the last three years

The aim of the Italian legislator to protect the "weaker party" is obvious: the franchisee must be able to know all the elements useful and necessary to assess as comprehensively as possible the content of the entire franchise agreement, within a sufficient timeframe, which the law quantifies as "at least thirty days in advance".

However, an exception is made to the obligation to provide information in the case of "objective and specific confidentiality requirements, that must be mentioned in the contract". This is precisely in order to prevent the franchisor from exposing itself to adverse legal consequences for having provided the potential franchisee with confidential information pertaining to its business.

In fact, by doing so, the franchisor can protect its position and may omit to disclose sensitive information concerning its franchise network. To this end, each franchisor is in any event advised to conclude with the prospective franchisee precise confidentiality agreements, so-called non-disclosure agreements, which provide for substantial penalties in the event of a breach of confidentiality.

Disclosure modalities

In addition to the content of the information, the franchisor must also pay particular attention to the manner of disclosure and transmission of the documentation indicated in the preceding paragraph. Indeed, the mere signing of a contractual clause inserted in the franchise agreement, by which the franchisee generally declares the receipt of the documentation provided for by Article 4 of Law No. 129/2004 is not sufficient to prove that the franchisor has fulfilled its information obligations. To that end, it is in fact essential that the franchise agreement be accompanied by proof of both the content of the information and of the way it was provided, otherwise the agreement will be null and void.

Duty of disclosure for foreign franchisors

Given the globalization of business formulas and the resulting requirements, it is necessary to pause and analyze the case where the franchisor, prior to the signing of the franchise agreement, has operated exclusively abroad.

In this hypothesis, the pre-contractual information obligations to which the franchisor is subject are governed by Ministerial Decree no. 204 of 2005, which is applicable in addition to Law no. 129 of 2004 in the hypothesis that a foreign franchisor intends to extend its franchising activity to Italian territory.

In particular, art. 2 of the Ministerial Decree 204/2005 provides that the foreign franchisor, in addition to the copy of the franchise agreement, the company information, the trademarks and patents and the description of the business formula, as provided for by Law 129/2004, must undertake to provide the prospective franchisee with:

a numerical list of operating franchisees and direct outlets, broken down by individual states; as well as, at the request of the prospective franchisee, a list of the locations of at least twenty operating franchisees. This information may also be provided electronically or published on the franchisor's website
an indication of the change, on an annual basis and broken down by states, in the number of franchisees and their respective locations during the past three years or since the start of operation, if earlier
a summary description of any judicial or arbitration proceedings, settled in the previous three years, with a final judgement, indicating the parties and the adjudicating body

It is also important to emphasize that, at the request of the prospective franchisee, the information concerning the agreement, and its annexes must be provided by the franchisor in Italian.

Pre-contractual obligations of conduct

In addition to the obligation to provide pre-contractual information, Italian franchise law also provides for specific conduct obligations to be complied with by the parties throughout the duration of the franchise relationship.

In particular, Article 6 of Law No. 129/2004 provides that both franchisor and franchisee must act with loyalty, fairness and in good faith. In addition, the same provision also imposes on each party the obligation to provide in a timely, accurate and complete manner any data and information necessary or useful for the purposes of concluding the contract, always in compliance with any confidentiality obligations to which the parties have subjected themselves.

This obligation is modulated differently for each of the two parties, with the following peculiarities. As far as the franchisor is concerned, the latter is obliged to promptly provide the prospective franchisee with ‘any data and information that the latter deems necessary for the purposes of entering into the franchise agreement’, other than and in addition to the information prescribed by Article 4 of Law 129/2004.

This information refers to any element that the franchisee may consider useful for the purposes of concluding the agreement, according to his own personal assessment, unless it is objectively confidential information or the disclosure of which would constitute a violation (even if only potential) of third-party rights.

In essence, the franchisee may request any data or information without any formal constraints and without even having to justify its request, making a general reference to the conclusion of the contract sufficient. Consequently, the franchisor is obliged to provide what is requested in a timely manner, so as to avoid that a late reply may prejudice the franchisee's interests.

If the franchisor decides not to provide the information requested, it must provide the franchisee with a valid reason for the refusal, even if only prudently in writing, which however doesn’t need to be included in the contract.

The prospective franchisee, on the other hand, ‘must promptly, accurately and completely provide the franchisor with all information and data, that is necessary or appropriate for the purpose of entering into the franchise agreement, even if not expressly requested by the franchisor’.

In substance, the franchisee ‘s obligation to provide information is entirely independent of any request for information from the franchisor and does not impose any disclosure obligation on the franchisor. As a result, it is not easy for the franchisee to find additional information that may be necessary or useful with respect to specific requirements of the franchisor.

It should be noted that the breach of the duty of contractual good faith, understood as the breach of the duties of loyalty and fair dealing in negotiations, is a source of non-contractual liability under Article 1337 of the Italian Civil Code.

What are the risks and possible consequences of failure to comply with the disclosure requirements?

If the franchisor has provided the franchisee with false, inaccurate or incomplete information, Article 8 of Law No. 129/2004 provides that the franchisee may request the termination of the contract and compensation for any damage suffered.

In particular, the annulment of the contract, for example, may be requested by the franchisee, if the franchisor has provided him with false information concerning the franchise network; this case is generally governed by Articles 1439 and 1440 of the Italian Civil Code, which regulate the institute of ‘negotiating fraud’. Therefore, in application of these general rules, the franchise contract may only be annulled if the false information provided by the franchisor was decisive in obtaining the franchisee's consent. In such a case, in addition to the termination of the contract, the franchisee will also be entitled to claim and obtain compensation for the damage suffered.

Conversely, if the franchisor has provided false information by ‘deceiving’ the prospective franchisee and provided that such deception has not affected the franchisee ‘s willingness to enter into the franchise agreement, but has only affected the terms thereof, the franchisee will not be entitled to request the cancellation of the agreement but will nevertheless be entitled to claim damages.

In any event, where the franchisor has failed to disclose the information set out in Article 4 of Law 129/2004, the franchisee may always seek the annulment of the contract on the ground of mistake or fraudulent omission, provided that he proves that the franchisor ‘s reticent conduct was preordained with a view to misleading him. Such reluctance on the part of the franchisor is also relevant with regard to the pre-contractual duty of good faith laid down by Article 6 of Law No. 129/2004 and Article 1337 of the Italian Civil Code.

From a different point of view, it should also be noted that the franchisor's lack of, inexact or incomplete information, in addition to the extra-contractual liability profiles already highlighted, exposes him to possible sanctions for misleading advertising. In fact, the Antitrust Authority (AGCM), upon a report by the franchisee or even simply on its own initiative, could impose a fine on the franchisor for failure to comply with the disclosure requirement.

Best practices to follow to avoid breaches of pre-contractual obligations

In conclusion, in order to ensure the validity and seriousness of a franchise network and of the contracts it concludes, the franchisor must ensure that it always provides each prospective franchisee with complete, up-to-date and truthful information, as required by Law No. 129/2004.

To this end, the franchisor, also to avoid exposing itself to prejudicial legal consequences, may follow the following best practices:

be assisted by a legal advisor specialized in franchising matters, following the instructions provided to him/her and rely on him/her for the transmission of documents to prospective franchisees
sign a confidentiality agreement with the franchisee prior to providing any information about the franchise network, which should be carefully drafted by a specialized attorney to prevent the franchisee from disclosing or using sensitive network information for his or her own benefit in the future
urging the franchisee to ask the franchisor for all the information that the latter deems useful for signing the franchise agreement, so that the agreement cannot later be rescinded for lack of consent
arrange for a periodic update of the pre-contractual information provided to the franchisee, thus ensuring that it is always complete, up-to-date and exhaustive

Ultimately, as can be seen from the above analysis, the entire Italian regulatory framework is based on a ‘full disclosure’ imposed on both the franchisor and the franchisee; more generally, the exchange of information between the parties involved in the negotiations is an essential condition for the proper conduct of pre-contractual relations.