Buying a franchise business: ensure continuity of customer contracts

Buying an established franchise business can give you a ready-made customer base, but customers’ purchasing history does not guarantee that their contracts will continue. A franchise network consists of independent businesses: a familiar brand alone does not tell you which company the customer has contracted with. Before buying, establish which customer contracts actually belong to the business you are acquiring and on what terms you can continue delivering them.

1. Establish who the customer has contracted with

Start with a list of contracts, not just a customer list. Ask the seller to identify ongoing service contracts, subscriptions, maintenance agreements and other arrangements that generate recurring revenue. For each, record the contracting parties, duration, termination terms and any restrictions on transfer. Also check whether the signed agreement remains in force or has been amended by a later order or email.

Within a franchise network, a customer relationship may involve several agreements. The franchisor may enter into a national framework agreement under which the local franchisee provides the service. In another model, the franchisee contracts directly with the customer. This distinction determines whether the seller can promise to transfer the customer contract to the buyer at all.

Ask to see the applicable general terms and conditions, price lists and service descriptions too. The contract’s cover page alone will not reveal, for example, the customer’s right to stop placing orders or switch service providers.

For your review, create a table showing at least:

• the customer’s name and the actual contracting party
• the service covered by the contract and the basis for billing
• the contract’s expiry or renewal date
• the terms governing transfer and changes of ownership
• any approval required and the person responsible for obtaining it.

Distinguish binding orders from estimates of future demand. A framework agreement with no minimum purchase commitment may enable sales, but it does not necessarily oblige the customer to buy anything. Even a long-standing customer relationship may rest on individual orders rather than an ongoing contract.

2. Check how the transaction structure affects continuity

In an asset purchase, the buyer is a different legal entity from the seller. You should therefore not assume that customer contracts transfer automatically. Transferring a contract as a whole generally requires the other party’s consent, unless the contract already permits the transfer or the applicable law provides otherwise. Review the wording of the transfer clause with a lawyer: assigning a receivable is not the same as transferring all the obligations under a service contract.

In a share purchase, the company that is party to the contract remains the same, even though its owner changes. However, the contract may contain a change-of-control clause requiring notice or approval, or giving the customer a right to terminate. Checks are therefore needed for both transaction structures, but for different reasons.

Finland has no specific franchising act, no compulsory registration of franchise agreements and no separate statutory franchise disclosure document. Contractual relationships are governed by legislation including the Contracts Act and the Unfair Business Practices Act, as well as general principles of contract law. Competition law may also apply. The Finnish Franchising Association’s Code of Ethics is a form of industry self-regulation, not legislation.

Customer contracts may also be affected by service-specific legislation and, where customers are consumers, the Consumer Protection Act. However, the buyer’s acquisition does not become a consumer transaction simply because they are becoming an entrepreneur for the first time. Nor does the franchise network’s approval of a change of franchisee replace any consent required from the customer.

3. Obtain approvals through a managed process before completion

Agree with the seller who will contact customers and at what stage. Contacting them independently could jeopardise confidential negotiations, but leaving essential approvals until after completion shifts the risk to the buyer. A practical solution is a joint customer contact plan that prioritises the most important contracts.

The approval should specify which contract is being transferred, to which company and from what date. It should also be clear whether prices, service levels and other terms will remain unchanged. A customer’s positive attitude towards the new franchisee does not, in itself, amount to consent to transfer a particular contract.

If the customer requires a new contract, compare it with the old one before accepting it. The customer relationship may nominally continue while its commercial substance changes: the contract term may become shorter, a purchase commitment may be removed or service obligations may increase. This is more than an administrative update.

For example, a major business customer of a local maintenance service may accept the new franchisee but also demand more extensive on-call cover. The buyer must then reassess whether they can meet that obligation with the agreed resources. Revenue billed under the old contract does not, on its own, reflect the value of the new arrangement.

Record the status of each key customer relationship: approved, conditional, pending or refused. Do not treat a lack of response as consent without a legal basis for doing so.

4. Agree responsibility for outstanding customer work

Consent to transfer a contract does not settle every question of continuity. On completion, there may be deliveries in progress, prepaid services and orders already accepted. Establish what has been promised to customers and who will fulfil those promises after completion.

Prepare a separate schedule of outstanding work and advance payments as at the handover date. If the buyer will deliver a service for which the seller has already been paid, reflect this in the financial settlement for the transaction. Also check who will be responsible for shortcomings in services provided before completion. The allocation of responsibility between buyer and seller does not, in itself, remove customers’ rights.

Also agree what customers will be told: will the contracting party, billing entity, payment account or contact person change? Coordinate with the franchise network to ensure customers receive a consistent and accurate message. Plan the transfer of necessary customer data in accordance with data protection rules; consent to transfer a contract does not, by itself, resolve every issue relating to the processing of personal data.

Practical takeaway: buy verified continuity of contracts, not just a customer list. Identify the contracting parties, obtain the necessary approvals and agree how outstanding obligations will be fulfilled before completing the acquisition.