Buying a franchise: how to agree exit and business sale terms

It is worth thinking about leaving a franchise network before you invest in it. A change in personal circumstances, retirement or an offer from a buyer may prompt you to sell even when the business is doing well. When choosing a brand, compare not only the entry terms but also your options for transferring the business, ending the agreement and securing release from future obligations.

1. Distinguish between selling the business, expiry and termination

These situations do not have the same consequences. An agreement may end when its agreed term expires, through termination for breach or by mutual agreement. Termination on notice, where permitted by the agreement or applicable law, is a separate way of bringing it to an end. Selling the business, meanwhile, does not mean that the franchise agreement automatically transfers to the buyer.

First, clarify what you might eventually sell: shares in the company, or particular assets and the business itself. In a share sale, the contracting party usually remains the same company, but the agreement may require the franchisor's consent to a change of ownership or control. Transferring the agreement to another person requires the other contracting party's consent under Croatia's Civil Obligations Act.

Pay particular attention to how much of the agreed term would remain for a future buyer. If the agreement is due to expire soon and continued cooperation is not secured, the business may be worth considerably less than you expect. Renewal is not an automatic right simply because you have paid your fees on time.

A practical question for the franchisor: can an approved buyer continue under the existing agreement, or must they sign a new one with different fees and obligations?

2. Agree a clear buyer approval process

The franchisor has a legitimate interest in protecting the franchise network's standards. However, a vague clause allowing it to reject any buyer without explanation creates business uncertainty. Before investing, try to agree a transparent assessment process.

The agreement should clearly set out:

• the financial standing, experience and training criteria for the incoming franchisee;
• the information to be submitted with a transfer request;
• the deadline for a response and how reasons for rejection must be provided;
• the transfer fee or how it will be calculated;
• who pays for the buyer's training and any mandatory refurbishment;
• whether the franchisor has a right of first refusal and how it can be exercised.

If there is a right of first refusal, specify how the offer must be delivered, the deadline for exercising the right and the terms on which you may subsequently sell to a third party. Do not assume that silence from the franchisor amounts to consent.

When comparing brands, speak, if possible, to franchisees who have already transferred their businesses. Ask how long the process took and whether any additional costs arose. Their experience does not guarantee your outcome, but it may show whether practice matches the contractual rules.

3. Calculate the full cost of leaving, not just the exit fee

Exit costs may include outstanding franchise fees, removing branding, returning equipment, dealing with remaining stock and ending access to business software. Do not assume that the franchisor will buy back goods or equipment unless this is expressly agreed.

Prepare three scenarios: a sale to an approved buyer, expiry at the end of the agreed term and early termination. For each, note what you must pay, what you can sell and how long the process will take. Separate obligations to the franchisor from those owed to employees, suppliers and finance providers.

Review personal guarantees and security arrangements particularly carefully. A share sale or the end of the franchise agreement does not necessarily release a guarantor. Seek clear provisions for release, the return of security instruments or appropriate confirmation from the creditor once the obligations have been settled.

If the agreement requires payment of future fees, contractual penalties or a predetermined amount of damages, ask a lawyer to check their legal nature, validity and method of calculation. Not every such clause is automatically enforceable. For example, Croatia's Civil Obligations Act does not permit contractual penalties for monetary obligations.

4. Check your rights and restrictions after leaving

Croatia has no specific franchise law or general franchise-specific requirement to provide a standardised pre-contractual disclosure document within a statutory period. A franchise agreement is an innominate contract, meaning it is not a separately defined contract type under the law: the Civil Obligations Act is central, alongside other applicable legislation. The Croatian Chamber of Economy (HGK) franchise register is not a mandatory state licence to grant franchises, and the European Code of Ethics for Franchising is not law.

Non-compete clauses must be considered under Croatia's Competition Act and, where applicable, EU rules, including Commission Regulation (EU) 2022/720. It is not true that every one-year post-termination restriction is automatically permitted: exemption under that Regulation also requires other conditions to be met. A clause falling outside the exemption requires an individual legal assessment.

Also check confidentiality obligations, the requirement to stop using the trade mark and how customer data must be handled. Croatia's Trade Mark Act and the General Data Protection Regulation may remain relevant after the relationship ends. Customer data is not an asset that you can hand over unconditionally to the buyer of the business.

Practical takeaway: before signing, prepare a one-page summary of the sale process, the costs of ending the agreement and the obligations that will remain. If you cannot complete any item clearly, seek clarification in the contract before investing.