Selling a franchise business: what to agree before expanding

When franchising a business in Spain, it is worth deciding from the outset what will happen if a franchisee wants to sell their outlet. This is not about preparing for a breakdown in the relationship, but about enabling an orderly handover that preserves customers, jobs and operational continuity. A franchise network needs clear rules for the seller, the buyer and the party responsible for the business model.

1. Distinguish the sale of the business from the transfer of the agreement

The Spanish term traspaso can refer to several different transactions. A franchisee might sell fixtures, stock and other assets; sell shares in their company; or propose that someone else take their place under the franchise agreement. Each option requires a different review.

Buying an outlet does not, in itself, confer the right to operate the franchise. The buyer needs a contractual basis for using the brand, accessing the know-how and receiving support from the franchisor.

Before drafting clauses, identify the scenarios you want to cover:

• Asset sale: which assets will be transferred and which contracts need to be dealt with separately.
• Transfer of the franchise agreement: how the replacement of the franchisee will be documented and whose consent will be required.
• Share sale: the company party to the agreement may remain the same, even if its controlling owners change.

Do not automatically treat these scenarios as equivalent. If you want certain changes of control to require approval, you must address them expressly and define the scope of that requirement. Nor does the franchise agreement replace the need to review the lease, employment obligations or permits applicable to the premises.

2. Make approval a predictable process

A clause that simply states ‘the franchisor’s approval will be required’ leaves almost the entire process unresolved. For the seller, that uncertainty makes negotiations harder; for the franchisor, it encourages ad hoc decisions.

Set out how approval must be requested, which supporting documents are required, who will respond and within what contractual timeframe. It is also worth explaining how missing documentation will be notified and when an application will be considered complete.

Assessment criteria should relate to business continuity: the buyer’s financial capacity, availability to manage the business, acceptance of the standards and ability to complete the necessary training and preparation. Avoid reserving absolute discretion without explaining what will be assessed.

Distinguish approval from a guarantee of profitability. The franchisor’s acceptance of a buyer does not mean it endorses the sale price or guarantees the outcome of the transaction. That distinction must be clear in communications and documents.

If the franchisor is granted a preferential right to purchase, specify its terms, the information needed to exercise it and the deadlines. A generic provision may obstruct the sale rather than facilitate an orderly handover.

3. Ensure the handover complies with Spanish law

Spain has specific franchise legislation: Article 62 of Law 7/1996 on the Regulation of Retail Trade, and the provisions of Royal Decree 201/2010 currently in force. The latter requires pre-contractual information to include restrictions on the franchisee’s freedom to dispose of the business. Restrictions on a sale or transfer should therefore not come as a surprise at the end of the initial negotiations.

Where the handover involves entering into a new franchise agreement with the buyer, arrange for written, truthful and non-misleading information to be provided at least twenty working days before the contract or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor. Do not schedule completion without allowing for this period.

For a transfer of the agreement or a share sale, obtain a specific legal review of the transaction structure and applicable obligations: not every transaction amounts to entering into an identical new franchise arrangement.

The general contract rules of the Spanish Civil Code also affect the transfer, as do company, employment and tenancy laws where applicable. The franchisor’s approval does not, by itself, resolve these issues.

4. Prepare for completion without disrupting the outlet

The agreement must specify whether the existing contract will continue or a new one will be signed, how long the relationship will last and how outstanding obligations will be handled. Do not assume that the seller is released from debts or guarantees: document any release expressly where appropriate.

Prepare a completion checklist with named responsibilities and deadlines to:

• Reconcile outstanding payments and define each party’s responsibilities.
• Confirm that the premises remain available and the necessary approvals are in place.
• Complete the buyer’s training before they take over operations.
• Transfer access to operational systems and handle personal data in accordance with applicable law.
• Communicate the handover without interrupting customer service.

Any fee charged by the franchisor for processing or preparing the transfer must have a clear contractual basis, with an understandable explanation of what it covers.

Practical conclusion: before adding your first franchised outlet, define who can transfer it, under what conditions and with which documents. A clear procedure protects continuity across the entire network.