Buying a Franchise: Clarify the Costs of Ending the Agreement

When buying a franchise in Denmark, you should also investigate what it will cost to bring the relationship to an orderly close. Even after a successful partnership, ending the agreement can involve costs relating to signage, equipment and winding down. A well-run franchise network therefore has clear arrangements for leaving. This article focuses on the financial aspects of a planned, lawful exit—not selling the business or terminating the agreement following a breach.

1. Do not assume you will receive compensation

Denmark has no specific franchise legislation, no mandatory franchise disclosure package and no dedicated registration scheme for franchise agreements. The relationship is governed primarily by the Danish Contracts Act and general principles of contract law. Depending on the activities involved, legislation such as the Danish Sale of Goods Act, Marketing Practices Act, Competition Act and Business Lease Act may also be relevant.

As a franchisee, you generally have no statutory right to payment for the customer base or local goodwill you have built up when the agreement expires or is lawfully terminated. Particular circumstances may require a case-specific legal assessment, but you should not include a possible exception as expected income in your budget.

If you want to receive payment for particular assets or value when the agreement ends, you should seek to have this expressly agreed. This could, for example, be an obligation on the franchisor to buy back specified equipment. Wording that says the parties will discuss a solution later does not offer the same certainty as a specific purchase obligation with a method for calculating the price.

Ask your adviser to distinguish between three things: agreed payments when the agreement ends in the ordinary course, payments for assets, and any claims for damages arising from a breach. Each has a different basis and they should not be confused.

2. Identify everything that must be removed or changed

The right to use the network’s name and branding derives from the franchise agreement. When the agreement ends, their use must normally stop in accordance with its terms. But the cost involves more than simply taking down a sign.

Review both the physical premises and the business’s digital presence, and list everything that may require work:

• External signs, window graphics and interior decoration.
• Workwear, packaging and printed materials bearing the network’s branding.
• Specialist fixtures and fittings that the agreement requires you to remove or alter.
• The website, local online profiles, telephone messages and other customer-facing channels.
• IT equipment and system access that must be returned or discontinued.

For each item, clarify who will carry out the work, who will pay and what deadline applies. Also check whether the franchisor can commission the work at your expense if you miss the deadline. If so, the agreement should set out the notice requirements, supporting documentation and limits on the costs.

Obtain relevant cost estimates before buying. If the premises need substantial alterations to stop them looking like part of the network, that is a real financial commitment. It does not disappear simply because the fixtures and fittings were paid for during trading.

3. Agree what happens to stock and equipment

Ownership and usability are not the same thing. You may own a machine that has only limited value after the agreement ends without the network’s software, service agreement or specialist consumables. Similarly, stock bearing the network’s name may be difficult to sell without continued permission to use its branding.

Ask for a separate written description of how assets will be handled when the agreement ends. For each type of asset, it should answer:

• Is buy-back compulsory or merely an option?
• Who can require the buy-back to take place?
• How are the price and any deductions calculated?
• Who pays for transport, dismantling and preparation?
• When will transfer and payment take place?

If the price is to be based on market value, the agreement should also explain how disagreements over valuation will be resolved. Book value is not necessarily the same as the sale price, and the original purchase price says little about the value after several years of use.

Also consider negotiating a defined sell-off period for remaining stock. This must be expressly agreed and coordinated with the end of your right to use the network’s name. Do not budget for continued sales under the brand without clarifying this first.

4. Prepare a separate exit budget and arrange the final settlement

Bring the expected costs together in an exit budget, separate from your normal operating budget. Include removal of branding, disposal costs, professional advice and any payments needed to end related agreements. Property leases, equipment leases and subscriptions will not necessarily end at the same time as the franchise agreement.

Prepare both an expected scenario and a cautious one. In the cautious scenario, for example, equipment may be difficult to sell, while repayment of a deposit may be delayed until the final account is settled. The aim is to identify which cash payments you will need to cover before any money comes in.

Also ask for a final settlement procedure: On what date do recurring fees stop? How are subsequent adjustments calculated? When will you receive supporting documentation, and when must guarantees or deposits be released under the agreement? Unresolved items should not leave the entire exit process open-ended.

Practical rule of thumb: Get a written exit plan setting out responsibilities, deadlines and pricing principles before you buy. A good agreement allows you both to join the franchise network and to leave it on financially manageable terms.