Buying a franchise: planning for the future sale of your business

You should consider your ability to sell the business before buying a franchise, even if you intend to stay with the brand for many years. Changes in your family circumstances, health or goals may make a sale necessary. In franchising, transferring a business does not automatically mean transferring the agreement that allows you to use the brand. Understanding the conditions in advance helps protect your investment and avoid being left unable to exit.

1. Distinguish between selling the business and transferring the agreement

The expression ‘selling the franchise business’ can cover different transactions. It may involve transferring the business as a going concern, selling equipment and other assets, or selling shares in the company that operates it. These options do not necessarily have the same effect on the franchise agreement.

If the buyer is to take over your position under the agreement, you need to check the rules governing the transfer of contractual rights and obligations. If you sell shares in the company, the contracting entity may remain the same, but the agreement may require approval for a change of control.

Do not assume that selling the company allows you to bypass the franchisor’s approval. Look for clauses covering transfers, assignments, changes in shareholders, changes of control and new investors.

Before signing, ask for written answers to three questions:

• Which transactions require the franchisor’s consent?
• Can the buyer take over the existing agreement, or will they have to sign a new one?
• Which rights and obligations will remain with the seller after the transaction?

Also check which elements can actually be transferred as part of the sale. The lease, supplier agreements, licences and other arrangements may require separate checks. The franchisor’s approval does not, on its own, resolve these matters.

2. Make sure the approval process is clear and verifiable

It is understandable that a brand will want to assess anyone joining its franchise network. For a future seller, however, an approval requirement without defined criteria or procedures creates uncertainty: you may find an interested buyer but be unable to explain how the decision will be made.

Ask for the agreement to set out the criteria for assessing prospective buyers, such as financial resources, relevant experience, availability to manage the business and completion of the required training. Check which documents will be requested and at what stage.

Try to negotiate a deadline for a response, running from the submission of a complete application, as well as written reasons for any refusal. Silence should not be treated as approval, unless there is an applicable contractual or legal basis for doing so.

Also check whether the franchisor has a right of first refusal or another mechanism allowing it to buy the business ahead of a third party. If so, clarify:

• Which terms of the offer must be disclosed;
• How and when the period for exercising that right begins;
• What happens if the price or payment terms change;
• How long you have to complete the sale to the original prospective buyer.

Put confidentiality arrangements in place too. A prospective buyer needs information to assess the business, but this does not permit unrestricted disclosure of the brand’s know-how or personal data.

3. Calculate the costs and any obligations that will remain

The advertised sale price is not necessarily the net amount you will receive. The agreement may provide for charges relating to the transfer, assessment of the buyer, training, legal work or alterations to the premises. Ask for each cost to be identified, along with who must pay it and how it is calculated.

Check whether the transfer requires refurbishment or replacement of equipment before the business is handed over to the buyer. An obligation triggered by the sale can significantly affect negotiations, even if the business continues to operate normally.

Prepare a simple table with three columns: seller’s costs, buyer’s costs and amounts still to be clarified. Add the taxes and professional fees associated with the transaction, checking these with your accountant and lawyer.

Your exit arrangements should also clarify how existing debts, customer advance payments and services yet to be delivered will be dealt with. If you have given personal guarantees, do not assume that the sale automatically releases you from them. Ask for the release conditions to be reviewed and obtain written confirmation from whoever has the authority to grant that release.

4. Understand the Portuguese rules before negotiating

Portugal has no specific franchise law, no compulsory register specifically for franchisors and no pre-contractual disclosure document with legally prescribed content. General rules apply, including the Portuguese Civil Code and, where relevant, commercial and competition law.

Article 424 of the Portuguese Civil Code allows a party to transfer its contractual position under an agreement involving reciprocal obligations, with the consent of the other contracting party. That consent may be given before or after the transfer agreement is concluded. The application of this rule must be considered in light of the specific transaction and the agreement signed.

Freedom of contract and good faith are also relevant. Where standard contract terms are involved, Decree-Law No. 446/85, as amended, applies, including its duties to communicate terms and provide information. A condition described as a ‘brand rule’ still requires legal scrutiny.

Ask your lawyer to review the transfer conditions before you join the network, not just when a buyer comes along. There is no general right to transfer your position as a franchisee freely without obtaining any necessary consent.

Practical conclusion: before buying, establish who can approve a future sale, what criteria they will use, what costs will apply and which obligations you will be released from. A clear exit starts with the agreement you sign when joining.