Franchising: check the terms for selling your business

Before buying a franchise business, consider how you might sell it. Family changes, new projects or personal circumstances may make a change of ownership necessary. Joining a franchise network means accepting shared rules. Among the first things to understand are the conditions for transferring the business to another operator without losing value or remaining liable under obligations and guarantees.

1. Distinguish between selling the business and transferring the agreement

Selling furniture, equipment and goodwill does not automatically transfer the right to use the brand. The transaction needs to be considered on several levels: the transfer of the business, the transfer of the franchise agreement, the right to occupy the premises and any licences or permits needed to continue trading.

In Italy, franchising is governed by Law No. 129 of 6 May 2004. Article 3 requires the agreement to be in writing, failing which it is void, and to expressly state, among other things, the conditions for renewal, termination or any transfer of the agreement itself. This does not give the franchisee an unconditional right to sell to anyone they choose.

The general rules of the Italian Civil Code also apply to the transfer of an agreement, particularly Article 1406 on the other contracting party’s consent. Where the agreement is transferred along with the business, these rules must be considered alongside Article 2558 on succession to business contracts and the specific contractual terms. Do not assume either that the agreement transfers automatically or that a new franchise agreement is required: have your particular circumstances reviewed.

Selling shares in the franchisee company is a different transaction again. The contracting party may remain the same, but the agreement could make a change of control subject to the franchisor’s consent.

2. Understand who can buy and how approval works

A franchisor may want to check that the new operator has the financial resources, experience and willingness to meet the network’s standards. The issue to negotiate is not simply whether these checks take place, but how predictable the process is.

Ask for the procedure to clarify:

• Buyer requirements: what skills, resources or experience are required?
• Information to submit: is a professional profile enough, or is a business plan also needed?
• Response times: how long does the franchisor have to respond once a complete application has been received?
• Reasons for refusal: does the agreement provide for verifiable criteria and a reasoned response?
• Operational conditions: must the incoming franchisee complete training before taking over?

A clause that leaves everything subject to the franchisor’s consent, without a procedure or deadlines, makes the sale less predictable. Do not assume that silence amounts to approval: there must be an applicable contractual or legal basis for this.

Check for any rights of first refusal too. If the franchisor can buy on the terms offered by a third party, the agreement should clearly set out what the notice must contain, the deadline for exercising that right and the consequences of any subsequent price changes. An uncertain procedure can put off a serious buyer.

3. Calculate what you will actually receive from the sale

The price agreed with the buyer is not necessarily the amount you will receive. The agreement may provide for transfer fees, administrative charges or work to be completed before the buyer takes over. These costs are not automatically payable by law: check their contractual basis, amount and the conditions under which they apply.

Prepare a breakdown with four columns: item, who pays, basis of calculation and payment date. Include any costs for approval, training the incoming franchisee, upgrading the premises and professional advice, as well as the tax treatment to discuss with your accountant.

Above all, establish whether the buyer takes over the existing agreement or must sign a new one. In the latter case, financial terms, operational obligations and required investment could change. These differences affect the buyer’s willingness to pay the asking price.

Finally, check what happens to deposits, outstanding amounts owed to you and sums already paid. A security deposit does not automatically become part of the sale price, nor is it necessarily returned when the business is sold: its treatment should be agreed and documented.

4. Leave without unresolved obligations

Consent to the transfer does not, on its own, establish that all your liabilities have ended. Before investing, have the agreement checked to see how it deals with releasing the outgoing franchisee and which obligations may continue.

Pay particular attention to personal guarantees given to the franchisor, bank or landlord. Ending these requires a separate review and, where necessary, a formal release from the relevant creditor. Existing debts and liabilities connected with the business transfer are also subject to their own rules: an agreement between seller and buyer may not be enforceable against third parties.

For a future transfer, work with your advisers to plan a coordinated sequence: approval of the buyer, agreement on the takeover, checks relating to the premises, arrangements for guarantees and completion of the sale. If approvals are needed but remain uncertain, consider appropriate conditions precedent rather than entering into binding commitments in the hope that approval will follow.

In practice: before signing, ask for a written walkthrough of the exit procedure. You should be able to identify who approves the buyer, which costs are triggered and what documentation is needed to release you from your obligations. If these points remain vague, negotiate them before investing.