Buying a Franchise Business: Agree the Conditions for Completion

When buying an existing franchise business, signing the agreement, paying the purchase price and taking over the business do not necessarily happen at the same time. The buyer’s risk increases if funds reach the seller before the buyer’s ability to start operating is assured. Joining a franchise network requires cooperation between several parties. The sale and purchase agreement should therefore set out a clear completion process: what must happen before the transaction can be completed, who will verify each requirement, and what happens if a condition is not met.

1. Distinguish signing from completion

Signing the sale and purchase agreement may already bind the buyer, even if the business will not transfer until later. Do not treat signing as merely reserving the opportunity. If any necessary decisions are still outstanding, the agreement must address them before it is signed.

A condition for completion is an agreed requirement that must be met before the transaction is completed. In a franchise acquisition, examples include securing finance, entering into a necessary agreement or obtaining a third party’s consent. Each condition should also specify what evidence will be sufficient to demonstrate that it has been met.

Distinguish between three dates:

• Signing date: the parties accept the sale and purchase agreement and the obligations it sets out.
• Deadline for satisfying the conditions: fulfilment of the agreed requirements must be demonstrable by this date.
• Completion date: the purchase price is paid as agreed, and the business or shares transfer in accordance with the sale and purchase agreement.

Also agree who is responsible for running the business between signing and completion. The buyer needs to know whether the seller may enter into new long-term commitments or make material changes to the business being acquired during this period. Set out any necessary restrictions expressly rather than relying on a general promise to cooperate.

2. Turn uncertain promises into verifiable conditions

A statement such as “finance will be arranged” is too vague to serve as a basis for completion. A preliminary discussion with a bank is not the same as a lending decision whose conditions you can meet and under which funds can be drawn down on the agreed date.

Draw up a list of conditions with the seller. For each item, identify the required document, the person responsible and the deadline. For example:

• Finance has been approved, and the conditions for drawing down the funds have been checked.
• The documents required by the franchise network have been signed in the agreed form.
• The agreement or consent needed to use the business premises has been obtained.
• The transfer or replacement of other agreements essential to the business has been confirmed.
• Any lender releases or other arrangements needed to transfer the business or shares being acquired have been documented.

Not every item will apply to every transaction. Choose the conditions according to what would prevent the business from continuing to operate or materially change the buyer’s liabilities in this particular acquisition.

Define an acceptable outcome as well. If, for example, a necessary agreement is available only on materially more expensive terms, its mere existence may not protect the buyer. Specify which changes require the buyer’s separate approval.

Keep statements from the seller, the franchisor and the lender distinct. The seller’s promise cannot substitute for another party’s decision. Obtain confirmation directly from the party whose consent or commitment is required.

3. Agree payment terms alongside the consequences of unmet conditions

Conditions for completion offer little protection if the payment terms require the full purchase price to be paid before those conditions are met. Review the payment schedule alongside the conditions. Every instalment should have a clear basis and payment date.

If part of the price is paid before completion, expressly agree what happens to that payment if the transaction does not proceed. Will it be refunded in full, within what period, and may any costs be deducted? Do not leave the grounds for deducting costs to later negotiation.

If necessary, the parties can explore with a professional adviser an arrangement under which the purchase price is released to the seller only once the agreed documents and confirmations are in place. The availability, costs and release conditions of such an arrangement must be agreed separately.

Also set out what happens when the deadline is reached:

• Does the agreement terminate automatically, or is written notice required?
• Can the deadline be extended, and whose consent is needed?
• Who bears the professional fees and arrangement costs already incurred?
• What happens if one party has failed to carry out its agreed tasks?

Failure to satisfy a condition is not the same as a breach of contract. The agreement should distinguish between a missing third-party decision and a party’s failure to submit an agreed application. Any right to waive a condition must also be precisely defined: a condition intended to protect the buyer should not be capable of being set aside without the buyer’s approval.

4. Check the legal framework and completion documents

Finland has no specific franchising legislation, franchise-specific disclosure law or compulsory registration system for franchise agreements. Agreements are assessed under, among other things, the Finnish Contracts Act and general principles of contract law. The Unfair Business Practices Act, Competition Act and Trade Marks Act may also be relevant.

The Finnish Franchising Association’s Code of Ethics is a form of self-regulation, not legislation. It does not replace the conditions for completion in the sale and purchase agreement. Nor does the general duty of good faith and loyalty alone determine when the purchase price must be refunded or who pays the costs of an unsuccessful transaction.

Ask a lawyer experienced in business acquisitions to check that the conditions for completion are consistent with the other agreements to be signed. Making the sale and purchase agreement conditional does not automatically make a separate franchise agreement or other commitment conditional.

Prepare a shared checklist for completion day and document fulfilment of the conditions in writing. Before making payment, ensure that the agreed confirmations are available and that the transfer can proceed as planned.

Practical checklist: do not leave completion dependent on verbal promises. Agree verifiable conditions, deadlines, the release of funds and the consequences if the transaction does not proceed.