Franchise Agreements in Denmark: Plan for the End from the Start

When turning your existing business into a franchise network, it is natural to focus on opening new outlets. But a robust franchise agreement must also address how the relationship ends. Clear rules on expiry, termination, transfer and winding down protect both the franchise concept and the franchisee’s investment. Here is a practical approach to planning for the end before the first agreement is signed.

1. Distinguish between the different exit routes

Start by setting out the circumstances in which the relationship may end. These will not necessarily require the same notice period, procedure or financial settlement.

• Expiry: A fixed-term agreement reaches its end date. Explain whether it can be renewed, when the parties must decide and what conditions apply.
• Termination on notice: A party ends the relationship by giving notice, where the agreement allows this. Specify who may give notice, when and how.
• Termination for breach: A material breach may justify ending the relationship without the usual notice period. The conditions require legal assessment.
• Transfer: The franchisee sells the business or changes its ownership structure. This does not necessarily end the franchise relationship, but it requires an agreed procedure.

As a prospective franchisor, you should align the agreement’s term with the investment you expect the franchisee to make. If premises and equipment require substantial investment, the agreement should provide a realistic basis for assessing the payback period. This is not a guarantee of earnings.

Avoid vague promises that the relationship will ‘normally continue’. Instead, set out how renewal will be handled and whether it requires a new agreement or refurbishment of the premises.

2. Base the terms on Danish law

Denmark has no specific franchise legislation and no general requirement to register franchise agreements. Nor is there a specific statutory disclosure document for franchisors. However, this does not mean that pre-contractual disclosures or the agreement’s terms fall outside the law.

The Danish Contracts Act (Aftaleloven) applies to franchise agreements, including section 36 on setting aside or amending unreasonable contract terms. General principles of contract law and liability for damages may also be relevant where information is misleading or withheld. Explain the exit terms clearly before signing, particularly if the franchisee could be left with rental costs or fixtures and fittings that cannot be sold.

The Danish Competition Act and EU competition rules, including the block exemption for vertical agreements, govern restrictions on competition. A post-termination non-compete clause is not automatically lawful simply because both parties accept it. The block exemption’s allowance for such clauses is subject to narrow conditions, including protection of transferred know-how, geographical limits and a maximum duration of one year. If a clause falls outside the block exemption, it requires an individual assessment; that does not, in itself, make it unlawful.

The Danish Trade Marks Act is relevant to the use of the network’s branding after termination, while the Danish Business Lease Act may affect the premises. The European Code of Ethics for Franchising is self-regulation, not Danish law. It may become relevant through membership obligations or the agreement itself. Ask an adviser with franchise experience to review how these rules interact.

3. Agree a fair process for problems and sales

A termination clause should not simply be a list of sanctions. It should also allow problems to be resolved before the relationship breaks down.

Describe how a failure to comply is documented, who receives a formal written notice and when the franchisee is given an opportunity to put things right. Distinguish between failings that can be remedied and serious issues that may require swift action. Avoid making every minor deviation grounds for immediate termination.

For a sale, the agreement should specify:

• What information the franchisor must receive about the buyer.
• What objective requirements the buyer must meet, such as securing finance and completing training.
• When the franchisor must respond to a request for approval.
• Whether a right of first refusal applies and, if so, how it is exercised.
• Who pays the documented costs of the transfer.

Also address illness, death and prolonged interruptions to trading. An agreed communication and contingency procedure can reduce uncertainty for employees and customers. It does not, however, automatically give the franchisor the right to take over operations.

4. Draw up a practical wind-down plan

Turn the agreement’s exit terms into a schedule setting out tasks, responsibilities and deadlines. The plan should reflect how your existing business actually operates, rather than simply following a generic contract template.

Include the removal of signs and branding, closure or transfer of digital access, return of confidential material and final settlement of accounts. Explain whether stock or equipment can be bought back, under what criteria and how the price will be calculated. A buy-back should not be left as a vague expectation.

Also clarify responsibility for outstanding customer orders, complaints and any gift vouchers. An internal agreement does not, in itself, alter customers’ rights. Nor can customer data automatically be transferred to the franchisor; data protection rules require, among other things, a lawful basis for processing.

Finally, work through a hypothetical exit with your adviser: what happens to the premises, customers, employees and system access the following day? If an answer is missing, the agreement or plan needs to be clarified.

Practical takeaway: Prepare the exit schedule alongside the franchise agreement. A strong franchise network also depends on both parties knowing how to part ways properly.