Buying a franchise: what if the franchisor transfers the agreement?

When buying a franchise, you assess not only the brand but also the particular company that will train, supply and support you. What happens if someone else takes over those obligations after you sign? Changes of ownership and corporate reorganisations can be part of a franchise network’s development. Before investing, however, you need to understand whether the agreement allows a change of franchisor and what that would mean for your rights.

Distinguish a change of ownership from a transfer of the agreement

Not every change involving the franchisor has the same legal effect. If someone buys shares in the franchisor’s company, the contracting party generally remains the same company. Its owner has changed, but that does not automatically transfer the franchise agreement to another legal entity.

The position is different if the franchisor wants to transfer its position under the agreement to another company. That company would take over the contractual rights and obligations, including those relating to support, use of the brand and collection of fees.

This should also be distinguished from the assignment of an individual receivable, such as the right to collect a fee. A new payment recipient does not necessarily become your new franchisor. Nor does outsourcing training or IT support, in itself, mean that the agreement has been transferred.

When reviewing the draft, therefore, highlight every provision that mentions:

• transfer of the agreement or contractual rights and obligations;
• assignment of receivables and changes to the payment recipient;
• a change of control or ownership of the franchisor;
• mergers, amalgamations or other corporate reorganisations;
• outsourcing contractual tasks to third parties.

Ask for an explanation of the consequences of each situation, rather than a general assurance that ‘nothing changes’ for you.

What Croatian law says

Croatia has no specific franchise law or dedicated mandatory system for pre-contractual disclosure and registration of franchise offerings. A franchise agreement is an unnamed contract governed by the Croatian Obligations Act. Depending on the nature of the relationship, the Companies Act, Competition Act and intellectual property legislation may also be relevant.

Under the Obligations Act, transferring a contract involving obligations on both sides to a third party requires the other contracting party’s consent. However, that consent can be given in advance. If the draft already includes your consent to a future transfer, do not assume that the franchisor will have to seek your approval again later. Where consent has been given in advance, notice of the transfer plays an important legal role.

Different rules apply to the assignment of a receivable: the debtor’s consent is generally not required, subject to statutory and contractual exceptions. Corporate reorganisations also require separate analysis, as they cannot be treated simply as ordinary contractual transfers.

The European Code of Ethics for Franchising can be an important standard of conduct within the franchise community, but it is not Croatian law or a substitute for contractual protection. A lawyer should review the precise wording of the clause and the legal mechanism for the proposed change.

Agree acceptable transfer conditions in advance

The aim of negotiations need not be a complete ban on transfers. It may be more useful to agree in advance what requirements a new franchisor must meet and what it must provide. Be particularly cautious about a clause allowing transfer to any related party without checking its capabilities. Membership of the same corporate group does not, in itself, prove that the new company has the staff, resources or necessary rights.

Propose that the agreement include the following safeguards:

• Timely written notice: the identity of the new franchisor, the planned date of the change and an explanation of its effects on the business.
• Evidence of capability: confirmation that the new franchisor holds the necessary brand rights and has the capacity to fulfil the contractual obligations.
• Preservation of agreed terms: the transfer itself must not be grounds for a new initial franchise fee, a shorter term or reduced support.
• Clear treatment of existing obligations: specify who will handle outstanding complaints, refunds due and training that has not yet been delivered.
• Protection against an unacceptable change: negotiate a right to terminate and a financial settlement if the agreed conditions are not met.

These are negotiating proposals, not rights that automatically apply to every franchisee. Be especially precise about any refund for prepaid services: what is refundable, how the amount is calculated and when payment is due.

Check how a transfer would work in practice

Before signing, carry out a simple check: imagine that the change takes place during your first few months of trading. Who would respond to urgent queries, maintain the IT system, deliver training and confirm orders? Ask for a transition plan covering these tasks, with uninterrupted access to the systems you need to operate.

Also draw up a list of your payments and unused entitlements. Include prepaid support, agreed training and approved but unpaid claims. When a transfer actually takes place, request written confirmation of how each item will be transferred or settled. Verify any change of bank account through an established contact, rather than relying solely on a message you have received.

Practical takeaway: before buying a franchise, check whom you are authorising in advance to take over the agreement. An acceptable transfer should preserve the agreed terms, clearly allocate responsibilities and allow the business to continue without unnecessary disruption.