Buying a franchise: plan your exit from the agreement

Joining a franchise network is a long-term business commitment, but not necessarily a lifelong choice. When buying a franchise business in Greece, you need to understand not only how it will operate, but also how you can sell it or leave. Exit terms affect the value of your investment, your personal liabilities and your next business move.

1. Distinguish between expiry and early exit

Expiry at the end of the agreed term, termination for breach and termination by mutual agreement are different situations. Do not assume that a general reference to a ‘right to exit’ covers every circumstance. Ask for the conditions, notice periods and financial consequences of each to be set out separately.

Greece has no dedicated law governing franchise agreements as a whole, nor a specific statutory regime requiring pre-contractual disclosure for franchises. Applicable provisions include the Greek Civil Code, Law 146/1914 on unfair competition and competition rules. Particularly important are good faith in negotiations and pre-contractual liability under Articles 197–198 of the Civil Code, performance in good faith under Article 288, and the prohibition on abuse of rights under Article 281.

The European Code of Ethics for Franchising is a self-regulatory framework, not legislation. Check whether the franchisor is bound by it and whether it is incorporated into the agreement. It is no substitute for specific contractual terms or a legal review tailored to your circumstances.

2. Match the agreement’s term to the investment involved

A business may need longer to recover its initial investment than the period for which it is guaranteed the right to use the brand. Ask your accountant to assess a scenario in which the agreement expires without renewal. Factor in any compulsory refurbishment towards the end of the relationship.

The possibility of renewal does not always amount to a right to renew. Clarify in writing:

• Who decides on renewal and against which objective criteria.
• When the renewal request must be submitted.
• Whether renewal requires a new fee, new equipment or acceptance of a different agreement.
• What happens if the premises lease runs for longer than the franchise agreement.

Review financing and equipment agreements at the same time. The expiry of the franchise agreement does not automatically extinguish rent payments, loan instalments or personal guarantees. The timelines for these obligations should be considered together, not in separate files.

3. Keep transfer a workable option

Selling the business may be an alternative to closing it. However, finding a buyer is not enough if the franchisor’s approval is required. Ask for clear eligibility criteria for a prospective successor and a defined assessment process.

Check whether the franchisor has a right of first refusal, how it is triggered and the deadline for responding. Also record who pays for the new franchisee’s training, any transfer fee and any required alterations to the premises. Vaguely defined charges can significantly reduce your net sale proceeds.

Clarify whether the buyer takes over the existing agreement or signs a new one. Also check whether a sale of shares or ownership interests counts as a change of control requiring consent. A transfer does not automatically release you from guarantees or existing debts. You need a separate, express release from each relevant creditor.

4. Calculate the cost of closing down

Ask for the agreement to require written notice of breaches and, where appropriate, a reasonable period to remedy them. The grounds for immediate termination should be clearly defined. Equally, examine your rights if the franchisor fails to provide essential support agreed under the contract.

Work with your accountant to draw up an ‘exit budget’ covering:

• Removal of signage and branding.
• Reinstatement of the leased premises and obligations towards employees.
• Payment of suppliers and outstanding contractual charges.
• Handling of stock, equipment and services customers have paid for in advance.

Do not assume that the franchisor is obliged to buy back stock. Agree which products will be accepted, how they will be valued and who will arrange and pay for transport. Any contractual penalty clauses need legal review; they should not be assumed to be either invalid or beyond legal scrutiny.

5. Check which obligations continue after you leave

Post-termination non-compete restrictions need particular attention. They are assessed under Greek Law 3959/2011 and, where its conditions of application are met, Article 101 of the Treaty on the Functioning of the European Union (TFEU). Regulation (EU) 2022/720 on vertical agreements is also important.

For a post-termination non-compete restriction to qualify for the block exemption, several conditions must all be met: it must relate to competing goods or services, be limited to the premises and land from which the franchisee operated, be indispensable to protect know-how transferred to the franchisee, and last no longer than one year. Other conditions also apply under the Regulation. Falling outside the exemption does not automatically make a restriction invalid; an individual assessment is required.

Distinguish this clause from confidentiality obligations and requirements to stop using the brand, which need to be considered separately.

Practical takeaway: Ask a lawyer and an accountant to map out three routes: expiry without renewal, sale and early termination. For each, you need a clear procedure, a cost assessment and a list of obligations that will remain.