Franchising: planning a franchisee’s exit from the network

When turning an existing business into a franchise community, you also need to plan for what happens when a franchise relationship ends. Setting out when the contract ends is not enough: you need to know who removes the signage, who fulfils outstanding orders and how access to systems is withdrawn. An exit plan agreed before the franchisee joins reduces uncertainty, unexpected costs and disruption for customers.

1. Separate the end of the contract from the practical exit arrangements

In Italy, franchising is governed by Law No. 129 of 6 May 2004. The contract must be in writing to be valid, and Article 3 requires it to expressly state, among other things, the conditions for renewal, termination or any transfer. However, the law does not provide a standard operational timetable for removing an outlet’s branding or dealing with outstanding business.

Working with your legal adviser, it is therefore worth distinguishing between two aspects: the reason for and date of the relationship ending, governed by the contract, and the steps needed to put this into effect, set out in an operational annex. The annex should not independently introduce penalties, purchase obligations or new costs that have not been agreed.

Draw up a table listing each task, the person responsible, the deadline, the cost and evidence of completion. Allow for different approaches to a scheduled expiry and a disputed termination: in the latter case, unilateral action involving signage, systems or assets can create further problems and requires prior legal assessment.

The exit terms must be available before any commitment is made. Article 4 of Law No. 129/2004 requires a complete copy of the contract, together with the annexes required by law, to be supplied at least thirty days before signing. Do not leave the financial terms of an exit to a procedure communicated only when the relationship ends.

2. Plan the removal of physical and digital branding

Start by listing every place where the public sees the brand: signage, shop windows, uniforms, packaging, vehicles, social media pages, the local website, map listings and booking platforms. For each one, identify the owner, the administrator and the party authorised to make changes.

Not every item is managed in the same way. A sign may belong to the franchisee, while the right to display the brand on it depends on the contract. A local page may be administered by either the franchisor or the franchisee’s business. Ownership of the item carrying the branding and the right to use the trade mark are not the same thing.

The plan should clarify:

• which brand identifiers must be removed or covered, and from what date;
• who appoints suppliers and pays the associated costs;
• how public contact details will be updated without confusing customers;
• which photographs, confirmations or written records will document completion.

For digital channels, avoid providing for automatic transfers without checking ownership, platform terms and the data they contain. Instead, prepare an authorised procedure for revoking access, changing shared login details and retaining documents that must remain available.

3. Deal with outstanding orders, stock and customer commitments

Ending the franchise relationship does not cancel commitments already made to customers. Before the exit, review outstanding orders, deposits, returns, warranty claims, subscriptions and vouchers that are still valid, identifying the business responsible for each obligation.

Do not assume that the franchisor automatically takes over responsibility for the franchisee’s sales. Define who will respond to customers, who will fulfil the commitments and how any assistance from other outlets will be handled and paid for. Communications must be consistent with the contracts entered into and with consumer rights, where applicable.

Review stock separately. For branded products, agree the terms that apply to remaining stock, without assuming either that the franchisor will buy it back or that resale is absolutely prohibited. Ownership of the goods, supply agreements and trade mark law require a specific assessment.

If a buyback is planned, specify the acceptance criteria, valuation method, transport arrangements and treatment of damaged products or those approaching their expiry date. The final inventory must distinguish between purchased goods, assets provided for use and promotional materials.

4. Protect data and documents without obstructing remaining obligations

Withdrawing access must protect the franchise community while still allowing the departing business to meet its obligations. Identify in advance which documents it may export, in what format and through which secure channel.

Personal data is subject to Regulation (EU) 2016/679, known as the GDPR, and the relevant Italian legislation. The customer database cannot simply be “handed over to the network”: the parties’ data protection roles, purposes, lawful bases and information provided to data subjects must all be checked. Deletion and retention must also follow justified criteria rather than happen automatically.

Finish with a written record of completed tasks, amounts still to be verified and remaining responsibilities. Do not present it as a general release from liability unless that effect has been expressly agreed and assessed.

Practical tip: before welcoming your first franchisee, run through a simulated exit using a table of responsibilities. Any item without a named person responsible, a deadline or a rule on costs needs to be clarified before signing.