Buying a franchise: check your right to sell later

When buying a franchise, most people focus first on getting the business open. Yet a future sale deserves attention from the outset. As a franchisee, you are an independent business owner, but you cannot necessarily pass your contract on to a buyer. Unclear transfer terms can limit your options when you want to sell. Before signing, check how you would be able to transfer your business later.

1. Distinguish between selling your business and transferring your contract

Selling your fixtures and equipment is not the same as transferring your franchise agreement. A buyer can acquire business assets without automatically gaining the right to use the franchise concept, trading name and associated systems. Without a workable contractual process, a sale may therefore stall.

The Netherlands has specific franchise legislation: the Dutch Franchise Act, incorporated into Articles 7:911 to 7:922 of the Dutch Civil Code. These provisions cover matters including pre-contractual disclosure and cooperation during the agreement’s term. However, they do not give you a general right to transfer your franchise agreement freely to any buyer.

The transfer of a contract is governed by Article 6:159 of the Dutch Civil Code. This requires a deed between the transferring and incoming parties, as well as the cooperation of the other party to the contract. When transferring your franchise agreement, that other party is the franchisor.

Ask which approach the franchise network uses: will the buyer take over your existing agreement, or must they enter into a new one? This distinction helps determine the term, fees and obligations that will apply to the buyer.

2. Establish clear criteria for approving a buyer

A franchisor has a legitimate interest in finding a suitable successor. The incoming business owner must be able to operate the franchise and have sufficient financial resources. But a clause stating only that a sale requires ‘prior consent’ leaves many questions unanswered.

Ask for a written description of the selection process. Discuss at least the following:

• What experience, qualifications and financial resources must a candidate have?
• What documents must you or the buyer provide?
• How long does the franchisor have to assess a complete application?
• Will reasons for rejection be provided in writing?
• Can a rejected candidate supply any missing information?
• How long does approval remain valid once granted?

Where possible, negotiate objective criteria and a reasonable deadline for a decision. Silence does not automatically mean consent, so also specify what happens if no response is received.

Check whether the franchisor has a right of first refusal or an option to purchase. Must you offer your business within the network first, or can the franchisor match a third-party offer? Ask for a precise explanation of when such a right arises, how long it applies and how the price is determined. An unclear procedure can deter serious buyers.

3. Calculate the implications of the transfer terms

A consent requirement is not the only potential obstacle. The terms offered to the buyer can also affect how easy your business is to sell.

Suppose you want to sell after a few years, with only a short period left on your franchise agreement. If the buyer receives only that remaining term, obtaining finance may be more difficult. If the buyer receives a new agreement, different fees or investment obligations may apply instead. Ask in advance how the franchisor handles this, without assuming that a new term is guaranteed.

Next, draw up a list of potential transfer costs. These might include a contractually agreed transfer fee, candidate assessment, compulsory training and alterations to the premises. For each item, note:

• who pays: you or the buyer;
• how the amount is determined;
• when payment is due;
• what happens if the sale ultimately falls through.

The statutory pre-contractual disclosure requirements include providing the draft franchise agreement with its appendices and an explanation of financial obligations. Ask for clarification of any transfer costs listed in those documents too. Then have your accountant calculate what the different sale options would mean for your net proceeds.

4. Clarify your position after the sale

Completing a sale does not automatically release you from every obligation. Have a lawyer check which liabilities, guarantees and payment obligations could remain after the transfer. These might include outstanding amounts or a separate personal guarantee.

Ask how your release from existing obligations will be recorded in writing. An agreement with the buyer that they will make future payments is not the same as a release by the party entitled to demand payment.

Also discuss whether selling shares in your Dutch private limited company, or bv, requires consent. The bv will generally remain the contracting party, but the franchise agreement may contain a separate change-of-control clause. Do not treat a share sale as a way to bypass transfer conditions without taking legal advice.

Practical conclusion: before buying, ask for a clear written process for a future sale: who can take over, how approval works, what it costs and when you will be released from your obligations. This allows you to assess not just your entry into the business, but your eventual exit too.