Buying an Existing Franchise in Belgium: Secure the Franchisor’s Approval

Buying an existing franchise outlet may seem straightforward: the business is operating, it has customers and the seller wants to hand it over. Yet agreeing on a purchase price does not automatically mean you can continue operating under the franchise brand and system. Within a franchise network, the franchisor may have a contractual say over who joins. Before making an offer, find out what approval is required and how any right of first refusal could affect your purchase.

1. Check who must approve the transfer

Ask the seller for the full franchise agreement, including schedules and subsequent amendments. Do not just look for a clause headed ‘transfer’. Provisions concerning the identity of the franchisee, directors or changes in shareholding may also be relevant.

Then distinguish between two questions: is the seller allowed to sell the business, and are you allowed to use the franchise brand and system after the sale? Permission for the first does not necessarily imply permission for the second.

Establish at least the following:

• Which transactions require prior consent: a transfer of the outlet, an assignment of the agreement or a change of control?
• Who must submit the application, and what documents must they provide?
• What selection criteria apply to you as a prospective franchisee?
• What contractual deadline does the franchisor have to respond?
• Is express written consent required?

Do not assume there is a standard statutory period of thirty days. The agreement may specify a notice period, but this must be checked for the particular acquisition. Nor should you automatically treat silence as approval.

2. Investigate the right of first refusal before incurring costs

A franchise agreement may give the franchisor a right of first refusal. This may allow the franchisor to buy the business or outlet on the terms of a proposed sale to a third party. Exactly how this works depends on the wording of the agreement.

For you as the buyer, this creates a practical risk: you negotiate, commission due diligence and arrange finance, while the franchisor may be able to step into your place. Ask when the right is triggered and what information must be provided for that purpose.

Do not let the seller deal with the procedure through an informal phone call alone. Check the prescribed method of notification, the response deadline and the evidence that the procedure has been completed. Any waiver of the right of first refusal must clearly relate to the proposed transaction.

Watch out for subsequent changes, too. Depending on the clause, a lower price or different payment terms may require a fresh notification. Ask your adviser to assess this before changing the purchase terms.

Agree with the seller in advance who will bear which due diligence costs if the franchisor exercises its right. There is no automatic entitlement to reimbursement.

3. Make your offer subject to specific conditions

A verbal assurance that the franchisor ‘will agree’ offers insufficient protection. Ask a lawyer to determine how to make your offer or purchase agreement conditional on the necessary approval and completion of the right-of-first-refusal procedure.

An effective arrangement should clarify:

• what written consent is required;
• which buyer and outlet that consent covers;
• when the condition must be satisfied;
• what happens if approval is not forthcoming or is refused;
• how any money already paid will be treated if the purchase does not proceed.

Also make clear which conditions attached to the approval you would accept. Consent that depends on an unexpected refurbishment or a new joining fee could change the financial basis of the purchase.

Ask whether you will take over the existing franchise agreement or need to enter into a new one. Approval should not be considered separately from the contractual terms under which you will actually be allowed to start trading. Otherwise, you could buy a business without certainty about the terms for using the franchise brand and system.

4. Plan approval alongside Belgium’s disclosure requirements

Belgium has specific pre-contractual rules for commercial cooperation agreements, including franchise agreements. These are set out in Title 2 of Book X of the Belgian Code of Economic Law, Articles X.26 to X.33. General contract law and the rules on unfair terms between businesses also play a role.

When entering into a new franchise agreement covered by these rules, you must receive the draft agreement and the pre-contractual disclosure document at least one month beforehand. During the statutory waiting period, as a general rule, no commitments may be entered into and no fee, payment or security deposit may be requested or paid. There are statutory exceptions, including for confidentiality agreements.

If an existing agreement is being continued or transferred, obtain a separate assessment of how these rules apply to your proposed arrangement. The franchisor’s approval does not replace the statutory disclosure procedure. Nor does making an agreement subject to a condition precedent automatically make an early commitment permissible.

Before signing or paying anything, therefore, ensure that the acquisition date, franchisor approval and any new franchise agreement are legally coordinated.

Practical takeaway: only make an offer once you understand the consent procedure and the right of first refusal. Then ensure that your purchase goes ahead only if you can continue operating the franchise on terms that have been reviewed in advance.