Buying an Existing Franchise: Check the Transfer Terms

Buying a franchise that is already trading lets you assess the business before investing, but it also means examining its past. Agreeing a price with the current owner is not enough: you need to know what you are buying, which obligations may come with it and how you will fit into the franchise network. This guide focuses on reviewing the transfer before paying a deposit or making any commitments.

1. Define what you are buying and whose approval is needed

The Spanish term traspaso, or business transfer, can describe legally different transactions. Ask for a proposal that identifies the seller, the assets and rights included, and the structure of the purchase.

• Buying shares in a company: you acquire the company that owns the business. It retains its contracts, assets and obligations, including historical liabilities that have not yet come to light.
• Buying the business or an economic unit: you acquire specified assets and rights. Even if the contract excludes debts, you may still have statutory liabilities towards employees, the Spanish tax authorities or the social security authorities.
• Buying individual assets: acquiring furniture or machinery does not necessarily mean acquiring the business, but what matters is the substance of the transaction, not simply its label.

Next, check what the franchise agreement allows. It may require approval for a business transfer or contain provisions covering a change of control of the company. Buying from the current franchisee does not automatically give you the right to use the brand.

Ask the franchisor for written confirmation: do they approve the buyer? Will the existing agreement be assigned, or will there be a new one? What term, fees and requirements will apply? Do not base your valuation on years of trading rights that have not yet been agreed.

2. Investigate employment and tax obligations

If the transaction qualifies as a transfer of an undertaking, Article 44 of Spain’s Workers’ Statute may require you to take over the existing employment relationships. A change of owner does not, in itself, terminate employment contracts. For transfers made during the parties’ lifetimes, the transferor and transferee are jointly and severally liable for three years for outstanding employment obligations arising before the transfer, under the terms of that article.

Request employment contracts, length-of-service details, payroll records, working-time records, outstanding holiday entitlements, applicable collective agreements and documents relating to any claims. Also review social security contributions and any action by Spain’s Labour Inspectorate. Do not assume that dismissing and rehiring the entire workforce is a valid way to ‘start from scratch’.

On tax, Article 42.1.c of Spain’s General Tax Law sets out circumstances in which taking over a business or economic activity gives rise to joint and several liability. With the current owner’s consent, Article 175.2 allows you to request a detailed certificate of tax debts, penalties and liabilities, which can limit or exclude liability as provided by law.

Ask your adviser to arrange this request before you buy. A general certificate confirming that tax payments are up to date should not be confused with this specific safeguard. Review potential social security liabilities separately.

3. Check which assets and commitments you will take on

Prepare an inventory to be attached to the contract. It should distinguish assets owned by the seller from those that are rented, financed or provided by third parties. Record their condition and any charges or retention-of-title arrangements.

Pay particular attention to these points:

• Stock: quantities, expiry dates, damaged goods and the valuation method to be used on the handover date.
• Equipment and software: ownership, maintenance, transferable licences and any need for new accounts or registrations.
• Commitments to customers: advance payments, prepaid passes or packages, gift cards, refunds and services paid for but not yet delivered.
• Essential contracts: consent from suppliers or other third parties where needed to keep contracts in place.
• Personal data: the lawful basis for transferring it, information to be given to the individuals concerned and security measures under the General Data Protection Regulation and Spain’s Organic Law 3/2018.

Also check whether the franchisor requires a refit to meet current branding standards, replacement equipment or system upgrades when ownership changes. These costs should be included in your budget and price negotiations, rather than emerging after the purchase.

4. Make completion conditional on documented checks

Keep three relationships distinct: the purchase agreement with the seller, your agreement with the franchisor and your arrangements with third parties. Align their dates so that you do not pay for a business you cannot yet operate.

Spain has specific franchise rules under Article 62 of Law 7/1996 and Royal Decree 201/2010. If you are signing a new franchise agreement or preliminary agreement, require written pre-contractual information at least twenty working days before signing or making any payment to the franchisor. The former national requirement to notify the Register of Franchisors was abolished in 2018.

Agree completion conditions, statements from the seller about prior obligations and safeguards against potential liabilities. You can negotiate for part of the purchase price to be retained, but this does not remove statutory liabilities towards third parties.

Practical conclusion: do not simply buy premises that are already trading. Buy a clearly defined package of assets, rights and obligations, with the franchisor’s approval and an independent legal, employment and tax review.