When a Brand Changes Hands: What to Check Before Buying a Franchise

Prospective franchisees usually assess the rights holder’s current team: its experience, reputation and willingness to help. Yet while an outlet is operating, the trade mark may pass to another company. A change of ownership is not necessarily a problem in franchising, but its implications are worth examining in advance. You need to understand which rights are protected by law, who will continue to fulfil the obligations and which provisions should be included in the agreement before you buy.

Distinguish between selling the company and transferring the trade mark

The phrase ‘the brand has a new owner’ can describe several different legal events. The distinction affects whether the agreement needs to change and whom you should pay.

Sale of shares or ownership interests in the franchisor. The company’s shareholders or members change, but the legal entity remains the same. If that company signed the agreement with you, a change in its ownership does not, in itself, replace the contracting party. Nor does a new director personally become the new rights holder.

Transfer of the exclusive right to the trade mark. The trade mark passes to another person or entity. This changes the holder of a specific right used in your franchise. The consequences depend not just on a letter from the seller, but also on the law, the scope of the rights transferred and state registration of the transfer.

Transfer of contractual obligations. A request to pay another company or receive support from a new operator does not, on its own, prove that the company has become a party to the entire agreement. Assignment of a right to payment, transfer of a debt and appointment of a contractor are different legal mechanisms.

Before buying, ask for a clear breakdown of the relationships: who owns the trade mark, who signs the agreement, and who provides training and ongoing support for the outlet. If these are different organisations, establish the legal basis for each one’s involvement. This will help you assess the consequences of future changes without guesswork.

Check what Russian law protects

In Russia, commercial concession arrangements—the legal framework commonly used for franchising—are specifically governed by Chapter 54 of the Russian Civil Code. The absence of the everyday term ‘franchise’ from the legislation does not mean there are no specific rules. Under Article 1028, a commercial concession agreement must be in writing, and the grant of the right to use the package of exclusive rights must be registered with Rospatent, Russia’s intellectual property office. It is the grant of rights that is registered, not merely the signed document.

The key provision when a brand changes hands is Article 1038 of the Russian Civil Code. The transfer to another person or entity of an exclusive right included in the package granted to the franchisee is not grounds for amending or terminating the commercial concession agreement. The new rights holder becomes a party to the agreement in respect of the rights and obligations relating to the exclusive right transferred.

This means that selling the trade mark does not, in itself, invalidate an existing concession agreement. However, this rule should not be read as automatically transferring every function of the previous team to the buyer of the trade mark. If other rights are not transferred alongside the trade mark, and separate companies provide services, the allocation of responsibilities needs to be checked separately.

If you are offered a licensing arrangement, also bear in mind Article 1235(7) of the Russian Civil Code: the transfer of an exclusive right is not grounds for amending or terminating a licence agreement. However, obligations relating to training, marketing and ongoing support must be assessed under the relevant contractual terms, rather than inferred solely from what happens to the licence.

Agree a procedure for notification and verification of authority

Before signing, propose a clear contractual procedure for any change of rights holder. It should help you verify what has happened, rather than simply provide new bank details.

The procedure should cover:

• an obligation to notify the franchisee of a completed transfer of rights within an agreed period;
• details of the new rights holder, including its name, Russian taxpayer identification number (INN) or other identifying information;
• confirmation of exactly which exclusive rights have been transferred and which obligations are affected;
• information on state registration of the transfer of the trade mark rights;
• a process for verifying the new payment recipient and the date on which payment arrangements change;
• a contact for questions about performance of the agreement during the transition.

There is little value in demanding full disclosure of the commercial terms of the brand sale: documents confirming legally significant changes matter more for keeping your business running. Equally, a message from a manager on a messaging app is not sufficient verification to change the payment recipient safely.

Agree in advance on the channel for formal legal notices and how the sender’s identity will be verified. Do not assume you can unilaterally suspend all payments whenever doubts arise: without a contractual or legal basis, doing so could put you in arrears. Instead, establish a procedure for requesting evidence and resolving payment disputes.

Assess continuity of support and the cost of new paperwork

Ask the seller to work through a specific scenario: the trade mark has been sold, but the specialists, training materials and support team remain with the previous company. Who responds to franchisees’ enquiries? Who is obliged to arrange training? Will the agreed service fees remain unchanged?

The answers should be clear from the documents. It is useful to specify separately who is responsible for obligations that do not transfer with a particular exclusive right, and how the franchisee will receive uninterrupted support. A statement such as ‘the new owner will deal with everything’ does not provide that certainty.

Pay particular attention to provisions allowing a change of ownership to trigger another initial franchise fee, higher payments or a requirement to sign a revised agreement. The sale of the trade mark does not, in itself, create an automatic obligation to buy the franchise again. Any proposed changes should be checked against the existing agreement and applicable law.

The practical takeaway: before buying, obtain clear answers to three questions—which rights remain in place, who will continue to fulfil the obligations, and what evidence confirms the change of payment recipient. This will allow you to assess the brand’s new owner on the basis of documents, rather than make rushed decisions under pressure.