Exiting a franchise: what to agree before you buy

Before joining a franchise network in Spain, it is worth understanding how you could leave it. Retirement, a change in family circumstances or a business that falls short of your expectations may force you to close or sell. Reviewing these possibilities before signing allows you to negotiate clear terms and avoid relying on verbal promises when you want to exit.

1. Distinguish between exit routes and their consequences

Choosing not to renew when the agreement expires, selling the business and terminating the agreement for breach are different situations. They are also distinct from voluntarily ceasing to trade before the agreed term ends. Each may involve different requirements and financial consequences.

In Spain, Article 62 of Law 7/1996 on Retail Trade and the provisions currently in force under Royal Decree 201/2010 regulate specific aspects of franchising, including pre-contractual disclosure. They do not establish a general right to leave a franchise without cost or recover your investment. The agreement and the general rules of the Spanish Civil Code on obligations, contracts and breach are also central to termination.

As you are acting for business purposes, you should not assume that you have the cancellation rights available for certain consumer purchases. Nor should you confuse a code of ethics with legislation: its relevance will depend on whether the franchise brand subscribes to it and whether it forms part of the agreement.

Ask an independent lawyer to identify the available exit routes and any clauses that may be invalid or open to challenge. A written penalty clause is not necessarily enforceable in every circumstance, but you should not assume that a court will reduce the penalty either.

2. Review the term, renewal arrangements and notice periods

Start by finding the exact expiry date. Check when the term begins: on signing, on handover of the premises or on opening. If these dates differ, you may have less actual trading time than you expected.

Then clarify the following points:

• Renewal: is it automatic, subject to agreement or dependent on meeting specific conditions?
• Notice: how far in advance must you give notice that you will not continue, and by what method?
• New terms: could you be required to refurbish, pay a different fee or sign a new agreement?
• Continued operation: what happens if the agreement expires and both parties continue operating without formally renewing it?

Record the deadlines in a calendar and plan to use a method of communication that provides evidence of both its contents and receipt. Simply mentioning it to the franchise development manager is not enough.

Also compare the franchise term with the duration of your lease, loans and equipment contracts. Ending your relationship with the brand does not automatically end those other obligations. If the lease continues afterwards, you will need to know whether you can use the premises for another business, assign the lease or terminate it, and at what cost.

3. Check whether you will be able to sell the business

Selling furniture, equipment and stock is not the same as transferring the franchise agreement. Before relying on a future sale as a way to recover your investment, check whether you need the franchisor’s consent and how to obtain it.

Ask for the agreement to set out the criteria for approving a buyer, the response deadline and the grounds for refusal. Also check whether the franchisor has a preferential right to purchase the business and how this would affect an offer from a third party.

Clarify in writing who pays for the new owner’s training, whether a transfer fee applies and whether the buyer must sign a new agreement. These conditions may reduce the price they are willing to offer.

The structure of the transaction also matters: selling the business assets is not the same as selling the shares in your company. A change-of-control clause may require consent even if the same company remains party to the franchise agreement.

Finally, ask for any exit arrangements to include an express release from your guarantees where appropriate. Transferring the business does not, in itself, release you from a personal guarantee given to the bank, landlord or franchisor.

4. Establish what you must pay and do when the agreement ends

Request a list of obligations for each exit scenario. It should cover outstanding invoices, penalties, removal of signage, return of manuals, cancellation of digital access and arrangements for remaining stock. Do not assume that the franchisor will buy back surplus stock: agree what it will accept, how it will value it and who will pay for transport.

Review the confidentiality and post-termination non-compete clauses. Their validity and scope require a specific assessment, including under competition law; a restriction is not necessarily valid simply because it appears in the agreement.

If you are leaving because the franchisor has breached the agreement, document the facts and seek advice before stopping payments or closing the business. You may need to issue a formal demand for compliance and allow a period for the breach to be remedied.

Practical conclusion: before buying, prepare a summary covering four scenarios: expiry, sale, early voluntary exit and breach of contract. For each, identify the timescale, procedure, cost and any guarantees that would remain in place. Negotiate written terms for anything that does not have a clear answer.