Lithuania is located in Eastern Europe, bordering the Baltic Sea and Russia in the west, Poland in the southeast, Belarus in the southwest and Latvia in the north. It has an area of 65,200 square kilometres and its capital city is Vilnius.

Lithuania had a population of est. 3,585,906 in July 2006. The national language is Lithuanian, however, both Polish and Russian are widely spoken. The main religion is Roman Catholic.

Lithuania gained independence from the Soviet Union on September 6, 1991. Now it is a parliamentary democracy with strong presidential elements. The constitution was approved by referendum on 25 October 1992. It contains provisions on the separation of powers between the executive, the legislative and the judicial branches as well as a catalogue of human rights.

Since 2000 Lithuania’s economy has been growing steadily. In 2003, shortly before joining the European Union, the country had the highest economic growth rate among the other candidates and the member states, at 8.8% in the third quarter. Beginning with 2002 Lithuania has also started the process of switching the national currency Litas to the Euro. The country is expected to finalise its efforts on January 1, 2007.

In September 2000 Lithuania introduced Statutory Franchise Regulation. A set of provisions regulating Franchising has been included in Chapter XXXVII of the Lithuanian Civil Code. As a result, the franchise activity, which has already been increasingly popular on the Lithuanian market, became a legally recognised form of distribution.

Pre-contractual obligations

Although Chapter XXXVII constitutes a broad regulation of the specifics of the franchise relationships, it does not specify disclosure obligations of the Franchisor. Failure to create specific franchise disclosure rules does not however exclude application of the general terms of the Lithuanian Civil Code determining pre-contractual obligations of every party wishing to enter into a legal relationship. The following set of rules forms the Lithuanian pre-contractual code of conduct:

1. In the course of the pre-contractual relationship the parties shall act in compliance with the principle of good faith.

2. The parties shall be free to begin negotiations and shall not be liable for failure to reach an agreement.

3. A party who initiates negotiations or negotiates in bad faith shall be liable for damages caused to the other party. It shall be deemed bad faith to enter into negotiations or to continue it with no will to reach an agreement, as well as any other actions inconsistent with the principle of good faith.

4. The parties are liable to disclose information which is of essential importance for an agreement to be concluded.

Franchise agreement

Chapter XXXVII stipulates the franchise agreement to meet the following formal requirements:

1. Only entrepreneurs are allowed to be parties to the franchise agreement.

2. The franchise agreement must be concluded in writing. Failure to comply with the form requirement results in invalidity of the entire franchise agreement.

3. In order for the franchise agreement to be binding upon third parties, it must be registered in the Register of Entrepreneurs in which the Franchisor is registered. The registration obligation also covers amendments to and termination of the franchise agreement.

Termination of the franchise agreement

The Lithuanian Franchise Regulation carefully determines the conditions of termination of the franchise agreement.
According to Chapter XXXVII, each party shall have the right to terminate the franchise agreement concluded for an indefinite period of time by giving another party a six-month notice. The regulation allows the franchise agreement to stipulate a longer notification period.

Furthermore, the regulation provides that the franchise agreement shall terminate in certain cases such as bankruptcy etc.

In addition, Chapter XXXVII introduces an atypical provision entitling the Franchisee to demand the franchise agreement to be renewed on the same terms providing that the Franchisee has duly fulfilled its duties under the previous agreement. The regulation allows the Franchisor to refuse the request of the Franchisee in certain limited circumstances.