Selling a franchise outlet: what to agree before you buy

When buying a franchise, you usually think about opening the business, not selling it. Yet the ability to transfer an operating outlet to another entrepreneur may determine whether you recover some of your investment. Within a franchise network, a change of ownership requires the interests of the seller, buyer and franchisor to be balanced. That is why it is worth agreeing the rules for such a transaction before signing your first agreement.

1. Establish what you can actually sell

“Selling a franchise” is shorthand for several different transactions. You might sell equipment and stock, the business as a whole, or shares in the company operating the outlet. Each option affects the franchise agreement and the parties’ liabilities differently.

Selling the equipment does not automatically give the buyer the right to use the brand. Similarly, buying the business does not automatically transfer all the obligations under the franchise agreement. The new operator needs an appropriate legal basis for using the network’s trade mark, procedures and systems.

In a share sale, the same company remains a party to the agreement. That does not mean there are no restrictions: the contract may make a change of control subject to the franchisor’s consent or specify consequences if consent is not obtained.

Before buying, ask which forms of ownership transfer the network allows. Request a description of the procedure and check whether it also covers handing the business over to a family member. An assurance that “you can always find someone to take over” is no substitute for contractual provisions.

2. Understand the Polish rules on transferring agreements

In Poland, a franchise agreement is an “innominate contract”: there is no separate statute comprehensively regulating franchising. The Civil Code is central, including the principle of freedom of contract under Article 353¹. Depending on how the transaction is structured, other relevant legislation may include the Commercial Companies Code, the Industrial Property Law and tax legislation.

There is no dedicated state register of franchises, nor a general statutory obligation to provide prospective franchisees with a franchise disclosure document within a specified period. Voluntary codes of good practice are not legislation. Proposed regulations should not be treated as law already in force either.

When the operator changes, the distinction between assigning claims and transferring debt is important. Under Article 509 of the Civil Code, assigning a claim generally does not require the debtor’s consent, unless this is precluded by legislation, a contractual provision or the nature of the obligation. Transferring debt, by contrast, requires the relevant consents under Article 519 and subsequent articles.

A clause allowing the “assignment of rights” may therefore be insufficient to transfer the entire agreement. A practical solution may be a three-party agreement setting out the rights, obligations and effective date of the change of operator. A lawyer should review its form and scope.

3. Negotiate a predictable process for franchisor consent

The franchisor has a legitimate interest in vetting the person who will represent the brand. Problems arise when it can block a transaction indefinitely without stating its criteria or reasons for refusal.

It is worth agreeing the following in the contract:

• Buyer approval criteria: experience, financial standing, required training and personal involvement.
• A response deadline: running from receipt of a clearly defined, exhaustive set of information, with rules for supplying anything missing.
• Reasons for refusal: identifying which requirement the candidate has failed to meet.
• Fees for changing the operator: the amounts or calculation method, and who pays them.
• Terms of the ongoing relationship: whether the buyer takes over the existing agreement or signs a new one, with any differences disclosed.

Do not assume that silence means consent. Such a mechanism would need to be established through properly drafted provisions.

Also check for any priority right to purchase or right of pre-emption reserved for the franchisor. These are distinct legal mechanisms. The agreement should clearly define the procedure, deadlines and effect of the relevant right on negotiations with an external buyer.

4. Separate the sale price from the costs of exiting

The price paid by the buyer is not the same as the amount the seller will keep. When assessing a franchise opportunity, draw up a separate list of the costs of transferring the outlet in future.

Allow for possible administration fees, training for your successor, required equipment upgrades and stock settlement arrangements. Establish whether the buyer must pay an initial franchise fee again. Even if the buyer is formally responsible for it, that fee may reduce the price they are willing to offer for the business.

Ask about unused advance payments, deposits and outstanding balances with the network as well. You need clear rules for valuing stock, allocating responsibility for customer complaints and dividing receivables and liabilities by reference to the handover date.

Do not overlook tax. Selling individual assets, an entire business or shares can have different tax consequences. Before putting your expected sale price into an exit plan, discuss your chosen structure with a tax adviser.

5. Make sure your liability really ends

Handing over the keys does not bring every obligation to an end. Personal guarantees, promissory notes, other guarantees and security arrangements require particular attention. In a share sale, the previous owner’s personal guarantee does not automatically fall away.

The handover procedure should provide for written confirmation of the financial settlement and identify which obligations remain yours. Release from guarantees and security should involve the relevant creditors; a promise by the buyer to “take over everything” may not protect you against their claims.

Also agree when your access to systems will be revoked and how data will be transferred. A customer database cannot be treated like ordinary equipment: sharing it requires an assessment of the legal basis and obligations under the General Data Protection Regulation (GDPR).

The practical takeaway: before buying a franchise, agree not only how you will join the network, but also how you could sell the outlet: approval criteria, deadlines, costs and release from liability. If these elements are missing, do not treat a future resale as a guaranteed way to recover your investment.