The São Paulo Court of Justice (TJSP) rules that premature cancellation of a franchise agreement does not authorize a refund of the initial fee.

The recent ruling issued by the 2nd Reserved Chamber of Business Law of the Court of Justice of São Paulo, in case number 1038567-67.2024.8.26.0576, on June 13, 2025, brings to light a recurring theme in the world of franchises: the premature withdrawal of the franchisee and the implications for the franchise fee.

The franchisee filed a lawsuit for contract termination combined with a request for the return of amounts paid against the franchisor. The central controversy revolved around the responsibility for the termination of the franchise agreement and the consequent return of the initial fee, set at R$ 50,000.00, after the franchisee’s withdrawal even before the unit’s opening. According to the case file, the franchisee alleged that the termination of the contract was due to the franchisor’s fault, arguing failures in assistance, such as difficulty in finding a suitable commercial location and a lack of effective responses to their messages.

It is crucial to understand that the initial franchise fee does not only refer to the opening of the physical store, but also compensates the franchisor for a series of preliminary costs and investments. These include the right to use the brand, market research, development and formatting of the business model, initial pre-operational support (such as assistance in site selection, manuals, initial training, and the legal and commercial structuring of the franchise system itself). Therefore, a significant part of the franchisor’s service is provided even before the unit opens, justifying the non-refundable nature of this fee in cases of unjustified withdrawal.

The plaintiff argued that, even after paying the franchise fee, there was no initial training, transfer of expertise, store setup, or layout design . On the other hand, the Franchisor defended itself, stating that the franchisee withdrew from the business of their own free will and due to a lack of planning, and that the franchise fee is used to cover operational and prospecting costs , with no bad faith on their part.

The first instance judgment partially granted the initial requests only to declare the franchise agreement terminated, however, it emphasized “the absence of fault on the part of the franchisor”. Due to the loss of the case, the plaintiff was ordered to pay court costs and attorney’s fees.

Dissatisfied, the franchisee appealed, seeking to overturn the judgment to obtain a full or at least partial refund of the franchise fee, invoking principles such as objective good faith and the prohibition of unjust enrichment. However, the Court upheld the first instance decision, denying the franchisee’s appeal. The judgment emphasized that, in business contracts, such as franchise agreements, the reversal of the burden of proof does not apply, since “both the franchisee and the franchisor are businesspeople who have knowledge of the business they intend to develop.”

The Court’s decision highlighted the validity of the contract, the delivery of the Franchise Offering Circular (COF), and the appellant’s full knowledge of its obligations, validating the principle of pacta sunt servanda [i] . The rapporteur, Judge Maurício Pessoa, considered the franchisee’s allegations regarding the lack of advice as “subterfuges,” noting the absence of formal or informal records of complaints. Furthermore, the decision pointed out that it was the franchisee’s obligation to indicate the commercial location, according to clause 6 of the contract, and that their contradictory behavior ( nemo potest venire contra factum proprium [ii] ) did not justify the transfer of fault.

The Franchise Offering Circular (COF) is a legally mandatory document in Brazil, which must be delivered to the potential franchisee at least 10 days before the signing of any franchise agreement or pre-agreement. It contains detailed information about the franchisor, the brand’s history, its financial situation, the obligations and duties of both parties, costs and fees. Its delivery ensures that the franchisee had access to all the necessary data to make an informed decision, reinforcing the principle of good faith in business dealings.

The decision was further reinforced by the jurisprudence of the Specialized Chambers of Business Law, which have consistently denied the restitution of the franchise fee in cases of unjustified withdrawal by the franchisee . The Court emphasized that the franchisor acted in good faith by not even charging the contractual penalty, and that the non-fulfillment of the franchisee’s expectations does not serve as grounds for contractual termination due to breach attributable to the franchisor. The return of the initial fee would be “unreasonable,” as the burden of withdrawal cannot be attributed to the franchisor, which needs to cover its costs, reaffirming that the risk of the business is inherent to the business activity and must be assumed by the franchisee.

[i] means ‘agreements must be kept’, that is, contracts are laws between the parties

[ii] no one can act in contradiction with their own previous acts