Buying a Franchise in Germany: Agree Stock Returns Before You Exit

When joining a franchise network, your initial focus is likely to be on opening the business and securing supplies. But before you sign, you should also establish what will happen to unsold stock when the contract ends. Particularly with branded products, a full stockroom can become a financial burden: you have paid for the goods, but may no longer be allowed to sell them as before. Clear stock return provisions make this risk easier to assess.

1. Without a stock return clause, the legal position remains uncertain

Germany has no dedicated franchise legislation. Franchise agreements combine elements of several types of contract. The key rules come primarily from the German Civil Code (BGB), and, depending on the circumstances, the German Commercial Code (HGB), as well as competition and intellectual property law. Standard contract terms are subject to legal scrutiny even in business-to-business dealings, particularly under section 307 BGB.

For stock, this means there is no blanket statutory right to return every product to the franchisor at its purchase price whenever a contract ends. An obligation to take back goods may arise from the contract or, in particular circumstances, from general legal principles. Whether such a right exists depends on the individual case.

Do not therefore rely on assurances that a mutually acceptable solution will be found later. A written agreement benefits both sides in a franchise network. It should specify who will take back which goods, on what terms and at what price.

It also matters who is bound by that obligation: the franchisor is not automatically responsible for returns to a legally independent supplier. Any commitment must come from the appropriate contracting party or be backed by a corresponding obligation on the franchisor.

2. Define the stock covered and the return conditions precisely

Review the draft contract alongside the proposed purchasing terms. A general phrase such as “returns of saleable goods” leaves important questions unanswered. What counts as saleable should be determined using clear criteria, rather than left entirely to the later discretion of the party accepting the returns.

Distinguish at least between:

• Current standard stock: unopened products that remain part of the range.
• Seasonal and promotional stock: items with a limited selling period or discontinued collections.
• Perishable products: goods with best-before dates or special storage requirements.
• Customised stock: packaging, uniforms or products bearing location-specific details.
• Demonstration items and samples: items that have already been unpacked or used in the business.

Clarify whether returns are available for each category. For goods with best-before dates, specify the required remaining shelf life. Packaging, damage and storage conditions also need objectively verifiable standards.

Stock you are required to hold deserves particular attention. If the franchise system requires minimum stock levels, opening packages or set quantities for promotions, expressly negotiate how these will be treated when you leave. An obligation to buy does not automatically come with a guarantee that the goods will be taken back.

Also ask whether the provisions apply equally when the contract expires normally, is ended by mutual agreement or is terminated early. Different reasons for ending the agreement may have different consequences. Have any blanket exclusions reviewed by a legal adviser.

3. Put the return price and payment process in writing

A promise to accept returns is of little help if the valuation remains unresolved. Specify the starting price to be used: for example, the net purchase price actually paid, taking account of the relevant discounts and credits. Then agree which deductions are permitted and how they will be calculated.

Pay particular attention to possible deductions for age, changes to the product range, damaged packaging, inspection or restocking. Vague “handling charges” make reliable calculations difficult. Transport, packaging and, where necessary, refrigeration can also significantly reduce the amount you receive.

The process should cover at least the following:

1. The cut-off date and procedure for a joint stocktake.
2. Evidence of purchase, condition and proper storage.
3. A deadline for inspection and for rejecting individual items, with reasons.
4. Responsibility for collection, delivery costs and risk during transport.
5. When payment falls due after handover or inspection.

A credit against future orders may be useless once you have left the network entirely. Explicitly agree whether you will receive a monetary payment. Also have a legal adviser check the circumstances in which the party accepting the returns may offset counterclaims against the amount owed to you.

4. Allow for selling off stock and any funding gap

If you cannot agree the return of all remaining stock, you need a realistic alternative. A limited sell-off period may help, but it must be consistent with post-contractual rules on use of the brand and how the business presents itself to the public. Owning the products does not automatically entitle you to continue presenting the business as an authorised franchise outlet.

Clarify the selling period, permitted sales channels, how packaging will be handled and who will deal with subsequent customer complaints. The agreement should also cover goods already ordered but not yet delivered: can outstanding orders be cancelled, and who bears any agreed cancellation charges?

Before investing, prepare a cautious estimate of your financial position on exit. Allow for the likely remaining stock, contractual deductions, return transport and the time until payment. Without a firm commitment to accept returns, do not assume that the full value of your stock will be reimbursed. Loan repayments and other obligations may continue regardless.

Practical takeaway: Before signing, secure binding terms on stock returns, valuation, payment and any sell-off period. What matters is not simply whether someone will take the goods back, but how much money you will actually receive and when.