Buying a franchise: how will you sell your unit later?

Before buying a franchise, think about the day when you may want to sell your unit. You might be retiring, facing a change in family circumstances or pursuing a new business opportunity. Running a successful unit does not necessarily mean you can transfer it to another business owner without restrictions. The franchise network needs a suitable new partner; you need a predictable process that allows you to sell without unnecessarily reducing the value of your investment.

1. Distinguish between selling the business and transferring the agreement

The term ‘selling a franchise’ can refer to different transactions. You might sell your shareholding in the company that operates the unit, or sell its equipment, stock and other business assets to another operator. The implications for the franchise agreement are not the same.

When you sell a shareholding, the same company generally remains party to the agreement, but its ownership changes. The agreement may require you to notify the franchisor or obtain its consent even for this type of change. When transferring the business to another legal entity, you need to make separate arrangements for who will hold the franchise rights and obligations. Buying the equipment alone does not give the buyer the right to use the brand.

Before signing, ask for clear answers to three questions:

• Does the agreement deal separately with changes of ownership and transfers of the agreement?
• Will the buyer take over the existing agreement or have to sign a new one?
• What happens if you sell just one of several units?

The right to sell assets is not the same as the right to transfer the franchise relationship. Bear this distinction in mind when estimating the value of a future sale.

2. Agree on clear, verifiable criteria for consent

The franchisor will want to check that the new partner can maintain standards and run the business. For the seller, however, there is a risk if the decision can be delayed indefinitely or the criteria for accepting a buyer are unclear.

Before buying, propose setting out the procedure in writing. Specify what information a prospective buyer must provide, who will assess their financial standing and experience, and what training they must complete. The criteria should be specific enough for you to look for a suitable buyer without having to guess.

A deadline for responding is also important. It should run from receipt of a complete application, and the agreement should specify how the franchisor must notify you if the documentation is incomplete. Do not assume that silence means consent; have a lawyer review and appropriately address the consequences of a failure to respond.

Also check whether the franchisor has a right of first refusal. If it does, the notification procedure, the details required about the third-party buyer’s offer and the deadline for exercising that right should all be clear. An unclear process may put off an outside buyer who does not know how long their offer will remain binding.

3. Calculate the costs and conditions that could reduce the sale price

A transfer may be permitted on paper but unattractive financially. When making an offer, the buyer will take account of the costs of joining the network and the terms on which they can continue trading. Before buying, therefore, ask for a breakdown of all contractual charges associated with a later transfer.

In particular, check:

• fees for processing or approving the transfer;
• training costs for the new owner and their team;
• any new initial franchise fee;
• any requirement to refurbish the unit when ownership changes;
• how outstanding liabilities must be settled before the transfer.

For each item, establish who pays, how the amount is calculated and when payment is due. If the amount is not fixed in advance, propose a verifiable formula or a contractual cap. Also ask which payments will be refunded if the transfer is not approved.

It is particularly important to establish whether the buyer takes over the remaining term of the agreement or receives a new agreement with different fees. A short remaining term or significantly higher ongoing costs could reduce their offer. For guidance, ask for an anonymised account of a completed transfer within the same franchise network, but do not treat it as a guarantee of the terms you will receive.

4. Address the legal framework and your release from liabilities after the sale

Slovenia has no specific franchise law, mandatory franchise register or dedicated statutory disclosure document. A franchise agreement is an ‘innominate contract’ — a type of contract not specifically defined by statute — and is governed by the general rules of the Slovenian Obligations Code (OZ), including the principle of good faith and fair dealing. Under the general rules of the OZ, transferring the entire agreement requires the consent of the other contracting party.

The rules of the Slovenian Companies Act (ZGD-1) are also relevant when selling a shareholding. The precise procedure depends on the legal form of the business and what is being sold. A franchise association’s code does not replace contractual arrangements or statutory rules.

With a lawyer, also check which obligations will remain after the sale. Consent to the transfer does not, in itself, release you from all personal guarantees or other separate commitments. Insist on explicit written provisions covering your release from liabilities and allocating responsibility for obligations arising before and after the transfer date.

Practical takeaway: before buying, prepare a one-page plan for a future sale: who you can sell to, who approves the buyer, how much the transfer will cost and when your obligations will end. If the agreement does not provide clear answers, resolve these points before signing.