Buying a Franchise: Protect Your Ability to Sell

When buying a franchise, you should also investigate how you might sell it one day. A well-run business is not necessarily easy to transfer if the franchise agreement blocks a new owner from taking over. Within a franchise network, the franchisor has a legitimate interest in who takes over. Your task is to ensure that this interest is reflected in clear terms rather than an unpredictable veto.

Distinguish between the business and the right to use the concept

Owning the business does not mean you are free to transfer the right to use the network’s name, systems and concept. A buyer may be interested in your assets and customer base, but without access to the franchise agreement, the business could have a very different value.

Denmark has no specific franchise legislation, no compulsory registration of franchise agreements and no statutory requirement for a prescribed franchise disclosure document before signing. This does not mean that material information can simply be withheld: general principles of contract law concerning good faith and liability when entering into agreements may apply.

Franchise agreements are governed primarily by the Danish Contracts Act and general principles of contract law. Other legislation, including the Danish Competition Act, Marketing Practices Act and Business Lease Act, may also be relevant. There is no specific statutory right for franchisees to sell freely, so the transfer provisions are crucial.

Ask your solicitor to clarify which actions the agreement treats as a transfer. These may include selling the business, selling shares or changing control of your company. Also check whether an internal restructuring requires consent, even if you remain the ultimate owner.

Make buyer approval predictable

A requirement for the franchisor’s consent is not inherently unreasonable. The new owner must be able to operate the concept and work within the network. Problems arise if approval depends entirely on the franchisor’s discretion, without criteria, deadlines or reasons.

Try to include the following in the agreement:

• Objective criteria: What financial standing, experience and operational capability must the buyer demonstrate?
• A clear process: Who receives the application, and what information must it contain?
• A response deadline: When must the franchisor respond to a complete application?
• A requirement to give reasons: Must a refusal be explained in writing with reference to the criteria?
• An opportunity to address shortcomings: Could the buyer, for example, complete additional training if they lack a qualification?

These are points for negotiation, not automatic legal requirements. Also agree what happens if the response deadline is missed; silence should not simply be taken as approval.

Ask whether the network will assess a potential buyer in principle before you spend money on a full sale agreement. This can reduce the risk of an expensive process falling through at a late stage.

Check rights of first refusal and the new owner’s terms

A right of first refusal may allow the franchisor to step in as purchaser instead of the buyer you have found. It should be precisely defined so that an interested buyer can judge whether the transaction is worth pursuing.

Clarify when the right is triggered, which documents you must provide and how long the franchisor has to decide. In particular, check how terms will be compared if the offer includes something other than cash payment, such as seller financing or an earn-out. Vague wording about buying on the “same terms” can lead to disputes.

Next, ask whether the buyer will take over your existing franchise agreement or have to sign a new one. This is crucial to the sale price. A buyer may value the business differently if the deal involves new investment requirements, changes to fees or a shorter guaranteed period of operation.

You should therefore ask for a documented process setting out when the buyer will receive their contractual terms. Do not market the business as carrying particular franchise rights if those rights cannot be transferred with the sale.

Calculate your net proceeds and clarify your liability

The sale price is not necessarily the amount you will be left with. The agreement may include a transfer fee, training requirements for the new owner or an obligation to upgrade the premises and equipment when ownership changes.

Before buying, draw up a simple breakdown of possible deductions from a future sale: payments to the network, professional fees, debt, any upgrades and tax. Use only documented amounts or clearly labelled assumptions. The aim is to identify terms that could make an otherwise attractive sale financially unappealing.

Also clarify when you will be released from future obligations to the franchisor. A sale does not necessarily release you from personal guarantees or other separate agreements. The relevant creditors will need to agree to any release.

Ensure the sale documents coordinate buyer approval, the transfer of the franchise agreement and any consents required from the landlord and bank. Otherwise, you risk promising a transfer whose various elements cannot all be completed together.

Test the agreement with a concrete sale scenario

Before signing, put one overarching question to the franchisor: “If I find a financially qualified buyer in a few years’ time, how do we get from the initial enquiry to my final exit?”

Ask for a written response setting out the process, required documents, payments and decision deadlines. Compare the response with the contract and have any necessary amendments incorporated. A friendly assurance that the network usually helps with sales is no substitute for contractual rights.

Practical takeaway: Do not just buy the right to run the business. Agree a workable exit route too, with clear buyer requirements, deadlines, costs and terms for releasing you from your obligations.