Planning for a business transfer in your first franchise agreement

When you turn your existing business into a franchise network, your main focus is likely to be opening new outlets. But a future sale deserves attention too. Your franchisee is building a business of their own and may eventually want to transfer it to someone else. A clear transfer procedure protects both the continuity of the outlet and trust within your franchise community.

1. Distinguish between the business and the franchise agreement

A franchisee who sells their business does not automatically transfer their franchise agreement with it. Equipment, stock, the lease, staff and contractual rights each raise their own legal issues. The right to use your franchise system and brand therefore needs to be addressed separately.

Under Article 6:159 of the Dutch Civil Code, transferring a contract requires a deed between the outgoing and incoming parties, together with the cooperation of the other contracting party. As the franchisor, you are that other party to the franchise agreement. Ask a lawyer to set out how your cooperation is to be requested and given.

If shares in a franchisee’s Dutch private limited company (BV) are sold, the contracting party generally remains the same legal entity. A clause dealing solely with the transfer of the agreement will therefore not automatically give you control over a change in ownership or control. Discuss which changes in ownership or management must be reported and when consent is required.

Also decide whether a successor will take over the existing agreement or enter into a new one. This affects, among other things, the remaining term, the applicable conditions and preparations for the transfer. Do not present the two routes as interchangeable.

2. Set out a consent procedure with clear assessment criteria

You want to prevent an outlet from passing to someone who cannot operate within your franchise system. At the same time, the franchisee needs to know how a proposed sale will be assessed. Simply stating that your consent is required offers little guidance.

Use criteria that are clear in advance, such as:

• demonstrable business skills and relevant experience;
• sufficient financial resources to acquire and operate the business;
• willingness to complete the required training;
• availability to manage the outlet in practice;
• acceptance of the applicable franchise requirements.

Explain which documents you need for this assessment. These might include a business plan, a financing proposal and an explanation of the buyer’s role. Avoid repeatedly requesting additional information without good reason: this makes the sale process unpredictable.

Also agree a response period that starts once the application is complete. Specify who handles the request, how missing documents will be flagged and how reasons for a refusal will be given. Make clear that this period is a contractual arrangement, not a standard statutory deadline.

Apply the same commercial assessment principles to a successor as you would to other candidates. A proposed sale should not become an opportunity to impose new requirements without clear justification.

3. Take account of the Dutch Franchise Act

The Dutch Franchise Act has applied in the Netherlands since 1 January 2021. The franchise rules are set out in Book 7 of the Dutch Civil Code, Articles 7:911 to 7:922. Among other things, they require franchisors and franchisees to act as good franchisors and good franchisees. That duty is also relevant when handling a transfer request.

If you enter into a new franchise agreement with the buyer, the pre-contractual disclosure obligations and the statutory standstill period of at least four weeks apply. The buyer must have sufficient time to review the required information. During that period, you must not, among other things, enter into the franchise agreement or require franchise-related payments or investments.

Where an existing agreement is being taken over, obtain a separate legal assessment of how the franchise rules apply to the proposed structure. Do not assume that calling the transaction a ‘transfer’ removes the need to comply with disclosure obligations.

Only plan the intended completion date once the legal route is clear. Align any conditions in the sale agreement accordingly. An agreement between seller and buyer to complete quickly does not override your statutory obligations.

4. Make the transfer workable in practice

Alongside the contractual clause, create a transfer checklist. Allocate tasks between the seller, the buyer and the franchisor’s team. Include when training will take place, who will receive access to systems and when suppliers and customers will be informed. Check separately what arrangements are needed for the lease, staff and personal data.

Avoid surprises over costs. If you intend to charge a fee for assessment, training or support, specify in advance what it covers, who pays and how the amount is calculated. Check that the same work is not already covered by another fee.

Test the procedure with a hypothetical sale before entering into your first franchise agreement. Can everyone see which steps are required, who makes the decisions and which conditions remain outstanding? This will help you identify ambiguities before a real buyer is ready to proceed.

Practical takeaway: do not just state that a transfer requires consent; explain how that consent is obtained. A procedure based on clear assessment criteria gives your franchise community scope for succession while safeguarding the continuity of the franchise network.