Buying a franchise: agreeing the terms for selling your business

Before buying a franchise, it is worth asking a question that is often left until last: what if you want to sell the business one day? Equipment, stock and a successful location are not the same as the right to continue trading under the brand. Within a franchise network, the departure of one franchisee and the arrival of another need to be clearly governed. Otherwise, you may find a buyer but no workable way to transfer the business.

1. Clarify what you would actually be selling

The phrase ‘selling a franchise’ can cover different transactions. You might be selling individual assets, the business as a whole or shares in the company that holds the franchise. The consequences differ, so when buying, ask a lawyer to check how the agreement treats each scenario.

Selling equipment and stock does not, in itself, transfer the franchise agreement. Buying tills, furniture or equipment does not give the buyer the right to use the franchisor’s trade mark, know-how or systems. Continuing to trade under the brand also requires the appropriate contractual rights to be put in place.

In a share sale, the same company may remain party to the agreement, but the agreement may require the franchisor’s consent to a change of ownership or control. Check whether such a clause also covers bringing in a minority investor, transferring shares to a family member or changing the person who actually runs the company.

Draw up a simple list of what a future buyer would need to take over: assets, stock, contractual rights, obligations and access to the system. For each item, note whose consent is required.

2. Croatia’s legal framework: transfer is not an automatic right

Croatia has no specific franchise law or dedicated mandatory pre-contractual disclosure regime requiring a standard disclosure document and a waiting period. You therefore need to check the agreement specifically for the possibility of a later sale, rather than assume that this right comes with buying a franchise.

The contractual relationship is governed primarily by Croatia’s Civil Obligations Act. Under its rules, transferring a contract to a third party requires the other contracting party’s consent. Selling individual assets must therefore be distinguished from transferring the franchisee’s entire contractual position.

If shares are being sold, Croatia’s Companies Act is also relevant, alongside the rules in the company’s constitutional documents. Depending on the transaction structure, tax rules and the Labour Act’s provisions on transferring employment contracts may also apply. Appropriate specialists should review these issues before a final price is agreed.

A franchisor’s membership of an association, or reference to a code of ethics, is no substitute for an enforceable contractual clause. Nor should you assume that the franchisor must buy your business if you cannot find a buyer.

3. Agree the buyer approval process

The franchisor has a legitimate interest in checking whether a new franchisee can maintain the brand’s standards. However, a vague clause giving the franchisor complete discretion, without criteria or deadlines, makes a sale harder to plan.

Before signing, try to agree the following:

• Buyer eligibility criteria: financial standing, relevant experience, training and availability to run the business.
• Required documents: what must accompany the application and who may access the prospective buyer’s confidential information.
• A response deadline: when the clock starts and how requests for additional documents are handled.
• Reasons for refusal: ask for written reasons linked to the agreed criteria.
• Process costs: who pays for assessing the prospective buyer, legal work and training.

Do not treat the franchisor’s silence as consent unless this is clearly and validly provided for. Also ask whether the buyer will take over the existing agreement or have to sign a new one. A new fee, different obligations or a shorter remaining term may affect the price they are willing to pay.

If the franchisor requires a right of first refusal, agree how the offer must be submitted, the deadline for responding and the conditions under which you may sell to a third party. An unclear process can put off a serious buyer.

4. Check which obligations remain after the sale

Signing a sale agreement does not necessarily bring all your obligations to an end. In particular, distinguish debts incurred before the transfer from the new franchisee’s future obligations.

Ask for a final reconciliation procedure covering the cut-off date for turnover, calculation of fees, a review of outstanding invoices and how any discrepancies identified later will be resolved. Also agree when your access rights to the franchisor’s systems will end.

If you have given a personal guarantee, do not assume that it automatically ends when you sell. Your release must be expressly agreed with the relevant creditor. The same applies to other separate obligations not covered by the transfer of the franchise agreement.

Before buying, work through a hypothetical future sale. Ask the franchisor to explain the sequence of steps, the consents required and all applicable fees. You are not asking for a guarantee that you will make a profit when you exit, but for a clear process that makes an actual transaction possible.

Practical takeaway: before committing, agree how you can exit — what you may sell, how the buyer will be approved and which document will confirm that your obligations have ended.