Buying an existing franchise: check what you are really buying

An established franchise outlet may look like a straightforward purchase: you can see the fixtures and fittings, the stock and a working till system. Yet not everything you see belongs to the seller or can be transferred. In franchising, ownership, hire arrangements and usage rights often exist side by side. Before making an offer, investigate what you are legally buying and what you will actually be able to use.

1. Establish what the transaction includes

When buying a business, it matters whether you acquire individual business assets or shares in a company. This choice helps determine which rights and obligations remain in place and which transfers must be arranged separately.

In an asset purchase, you agree which items will pass to you, such as equipment, stock and certain contracts. A contract does not simply transfer because it appears on an asset list. As a general rule, transferring a contract requires the other contracting party’s cooperation.

In a share purchase, the company retains ownership of its assets and remains a party to its contracts. You buy the shares in a business with an existing legal and financial history. Even so, a contract may state that a change of control requires consent or affects its continuation.

Before negotiating the price, ask your adviser to establish:

• Who is selling: the business owner personally or a company?
• Are you buying shares or individual business assets?
• Which assets, rights and obligations are expressly excluded from the purchase?
• Which consents are needed to keep trading after completion?

Do not use a description such as ‘the entire outlet’ without a detailed schedule. The buyer and seller may have very different understandings of what it covers.

2. Check who owns each key business asset

Work with the seller to list all the assets needed for day-to-day operations. These might include refrigeration units, ovens, furniture, tools, payment terminals and computers. For each item, record the make, serial number, condition and legal owner.

Then request purchase invoices, lease agreements and any financing documents. An invoice is useful evidence, but it does not always tell the whole story. A supplier may have retained title until payment is made in full. A bank may also hold a right of pledge over equipment or stock.

Do not pay for unencumbered ownership if the seller cannot yet deliver it. For assets subject to security rights, have the agreement specify how the debt will be repaid and the security released, who will confirm this and when you will receive that confirmation.

Also check whether the equipment is technically fit for purpose. An item may belong to the seller but no longer meet the franchise network’s requirements. Ask the franchisor to confirm in writing which existing fixtures, fittings and equipment you may continue to use. This helps you avoid paying for equipment that must be replaced immediately.

For stock, a count close to the completion date is often more useful than an old book value. Agree in advance how damaged, obsolete or unsaleable items will be treated and how any differences will be reflected in the price.

3. Treat usage rights as separate conditions

A functioning shop or service outlet consists of more than physical assets. Without access to till software, booking systems or essential accounts, the business could grind to a halt.

Prepare a second list: which services and rights are needed, who supplies them and whose name are they in? For each one, check whether it can continue, whether a new contract is required and what set-up or transfer fees apply.

Pay particular attention to:

• software licences and administrator accounts;
• maintenance contracts and warranties;
• telephone numbers and local digital channels;
• access to the franchise network’s ordering and administration systems.

A customer database cannot necessarily be transferred freely either. Personal data is subject to the General Data Protection Regulation (GDPR), known in the Netherlands as the AVG. Have an adviser assess the lawful basis for sharing or transferring data, what customers must be told and which data is genuinely necessary. Wherever possible, use anonymised information during due diligence.

For essential systems, draw up a handover plan identifying who is responsible and when testing will take place. Simply receiving a password is not proof that you have a lawful, ongoing right to use the system.

4. Make the purchase conditional on clear franchise arrangements

The seller’s consent is not the same as acceptance by the franchisor. Establish whether you will be signing a new franchise agreement, taking over an existing one or seeking consent for a share transfer.

The Netherlands has a Franchise Act (Wet franchise), incorporated into Book 7 of the Dutch Civil Code. When entering into a franchise agreement, requirements include pre-contractual disclosure obligations and a statutory standstill period of at least four weeks. Among other things, the franchisor must provide information about financial obligations and required investments. For franchisees established in the Netherlands, these statutory protections cannot be departed from to their detriment.

These rules do not replace your own checks on the assets you are buying. Compare the asset list with the franchisor’s investment information: what are you buying, what can stay and what needs replacing?

Ask a lawyer to include appropriate conditions in the purchase agreement covering necessary consents, transferable usage rights and the release of rights of pledge. Also specify what happens if a condition is not met.

Practical takeaway: work with two verified lists: what you will own and what you will be entitled to use. Complete the purchase only once both lists align with the franchise arrangements and the actual handover.