Buying a franchise: Agree your exit before you sign

When you join a franchise network, it is natural to focus on opening the business. But your options for selling, continuing or closing later are also part of the buying decision. Even a successful business can be difficult to transfer if the agreement gets in the way. That is why you should examine the exit terms before paying or signing anything.

1. Understand the Danish legal framework

Denmark has no dedicated franchise law. Nor is there a franchise-specific registration scheme or a legal requirement to provide a prescribed disclosure document before signing. General business registration requirements still apply. You should therefore request the documents you need to understand your options when the agreement ends.

Franchise agreements are governed, among other things, by the Danish Contracts Act and general principles of contract law. Freedom of contract is the starting point, but legislation such as the Danish Competition Act and relevant EU competition rules may restrict certain terms. Depending on the circumstances, the Contracts Act may allow unfair terms to be amended or set aside. However, this is not a safety net on which you should base your purchase.

As a franchisee, you have no specific statutory right to renewal. Nor are you automatically entitled to compensation simply because the agreement expires or is lawfully terminated. Any claim arising from a breach of contract is a separate matter and requires a case-specific assessment.

Ask for the full set of contractual documents: the contract, schedules, relevant sections of the operations manual and any separate guarantees. Also check which documents the franchisor can amend later, and whether those changes could affect your exit.

2. Make your right to sell explicit

Owning the business does not necessarily mean you are free to transfer the franchise agreement. The agreement may require the franchisor to approve both the buyer and the terms of the transfer. It may also govern sales of shares in your company.

Get written clarification on the following:

• What professional and financial requirements must a new franchisee meet?
• How quickly must the franchisor process a complete application?
• Must any refusal be justified against agreed criteria?
• Does the franchisor have a right of first refusal, and how is it exercised?
• Must the buyer take over your agreement or sign a new one?
• What transfer fees, training costs or upgrade requirements will apply?

A buyer may value the business differently if the agreement has only a short time left to run, or if a new agreement involves substantially higher payments. Ask for the transfer process and any renewal process to be set out together.

Also ask whether former franchisees have sold their businesses. If possible, speak to them about the approval process. Their experiences are no substitute for the contract, but they can show how the franchise network handles changes of ownership in practice.

3. Distinguish between renewal, termination on notice and termination for breach

These three situations have different consequences. Renewal means continuing after the agreement expires. Termination on notice ends the agreement in accordance with the agreed rules and notice periods. Termination for breach typically means ending the relationship because of a material breach of contract.

For renewal, the contract should specify the deadline for your request, the conditions for continuing and when the franchisor must respond. In particular, check whether you must accept a new standard agreement, pay a new fee or carry out a refurbishment. An opportunity to apply is not the same as a right to renewal.

For termination on notice, check whether the agreement prevents termination for a specified period and whether both parties have the right to give notice. Do not assume you can leave by giving a standard period of notice if your personal circumstances change.

For termination for breach, ask your adviser to review what counts as a breach and when you will have an opportunity to remedy it. A late payment, a quality failing and unauthorised use of the trade mark should not simply be treated as equivalent situations.

4. Map out the costs and restrictions after the agreement ends

Prepare a separate exit budget. Its purpose is not to reassess operating profitability, but to identify the payments and practical tasks that remain once your right to use the franchise concept ends.

Check the costs of removing signs, altering the fit-out, closing system access and dealing with remaining stock. Establish whether the franchisor must buy back goods and equipment or merely has the option to do so, and how the price would be determined. Also allow for possible transfer fees and professional advisory costs.

Clarify the position on personal guarantees separately. Selling the company does not necessarily release you from your guarantees. If release is a condition of your exit, require documentary confirmation from the relevant creditor.

Post-termination non-compete clauses must be assessed in light of their specific terms and the relevant competition rules. Do not simply accept that every restriction is valid. Also clarify how customer data will be handled under the GDPR and the Danish Data Protection Act; a contractual provision does not, by itself, give unrestricted permission to transfer personal data.

Practical conclusion: Before buying, ask your adviser to review three scenarios: a sale, non-renewal and early termination. For each one, establish the deadlines, payments, approvals and remaining obligations. Your route out of the franchise network should be just as clear as your route in.