What Should You Check Before Taking Over an Existing Franchise Business?

Taking over an operating franchise business may seem like a more tangible investment than opening one from scratch: the shop is open, a team is in place and sales records are available to inspect. However, buying the business does not automatically mean taking over the franchise agreement and all the rights associated with it. When joining a franchise network through an existing business, the key question is: which assets, rights and liabilities are you acquiring in return for the price you pay?

1. Establish the legal scope of the transfer first

The seller saying “I’m transferring the business” is not enough. Are you buying shares in the company, taking over the business as a going concern, or simply purchasing fixtures, equipment and stock? These options have different implications for historical debts, employees, contracts and the formalities required.

In a share transfer, the company continues to exist as the same legal entity. Its historical tax liabilities, supplier debts and ongoing litigation may therefore remain within the company you acquire. A commitment by the seller to take responsibility for certain debts does not, in itself, prevent creditors from pursuing the company.

In an asset purchase, each item being acquired must be identified individually. However, if the transaction legally constitutes a transfer of a business, simply stating in the contract that “debts remain the seller’s responsibility” may not remove all liability. What matters is the substance of the transaction, not its label.

Turkey has no separate law specifically governing franchise agreements, no general franchise register and no standard mandatory pre-sale disclosure document. The contractual relationship is governed by general legal provisions, notably the Turkish Code of Obligations No. 6098 and the Turkish Commercial Code No. 6102. The Industrial Property Law No. 6769 is also relevant to trade mark use, while the Law on the Protection of Competition No. 4054 matters for restrictions on competition. The absence of franchise-specific legislation does not mean transfers are unregulated.

2. Make the franchisor’s approval a condition of purchase

Reaching an agreement with the seller does not mean the franchisor has accepted you as the operator. Review the provisions in the existing franchise agreement covering transfers and changes in ownership structure. Even buying shares in the company may require the franchisor’s approval if the agreement requires consent to a change of control.

The transfer of a contract, governed by Article 205 of the Turkish Code of Obligations, requires the participation or consent of the party remaining under the contract. Clarify with your lawyer which transaction the franchisor must approve and how that approval must be given; do not rely on the seller’s verbal assurances.

Ask the franchisor to clarify the following points in writing:

• Will the existing agreement be transferred for its remaining term, or will a new agreement be signed?
• Will a new initial franchise fee, transfer fee or any other payment be required?
• Are there any unresolved breaches or outstanding debts relating to the existing business?
• Is approval conditional on replacing equipment or refurbishing the shop?

Make the franchisor’s approval an explicit condition that must be satisfied before completion under the purchase agreement. Also specify what happens to the transaction and any payments already made if approval is refused. When assessing the purchase price, consider not only the shop’s track record but also the length of the contract term you will receive.

3. Review debts and employee liabilities against supporting documents

Due diligence is not just about establishing whether the business generates sales. You also need to identify historical liabilities that could lead to cash outflows after the purchase. Prepare a document checklist for your accountant and lawyer to review together.

This should include trade registry records, signing authorities, financial statements, tax and Social Security Institution (SGK) records, supplier accounts, a reconciliation of accounts with the franchisor and ongoing disputes. Check whether the equipment actually belongs to the seller and whether it is subject to rental, finance lease or security arrangements.

For employees, separately assess start dates, pay, unused leave and outstanding claims. Article 6 of Labour Law No. 4857, which concerns workplace transfers, provides for existing employment contracts to pass to the transferee with their associated rights and obligations in transfers within its scope. The seller saying “you can sign new contracts with the team” does not make employees’ previous service irrelevant.

Do not leave identified risks sitting in a report. Reflect the seller’s representations, obligations to provide documents and liability for inaccurate or incomplete disclosures in the purchase agreement. Remember that these provisions do not override third parties’ statutory rights.

4. Secure continuity of the lease and define the handover package

If the business’s value depends on its current location, being able to continue operating there is a fundamental condition of the purchase. Review the remaining lease term, rent arrears, deposit and transfer provisions. Under Article 323 of the Turkish Code of Obligations, transferring a lease requires the landlord’s written consent; for business premises, the landlord cannot withhold that consent without justified grounds. However, this does not mean you can safely pay before the consent formalities have been completed.

Set out the handover package in detail too, with separate sections covering the fixtures and equipment inventory, stocktake, equipment working order, software usage rights and maintenance records. Confirm with the relevant authorities whether operating licences and other permits will remain valid under the proposed transaction structure; do not assume the previous operator’s documents will automatically suffice.

5. Link payment to verifiable completion steps

“Completion” is the stage at which the purchase price is paid and the agreed transfer formalities are completed. Prepare a checklist covering the franchisor’s approval, the necessary lease formalities, authorised signatures and a signed handover record.

Specify the stocktake date and valuation method that will be used to determine the price of stock. Also clarify who will be entitled to outstanding receivables and who will be responsible for customer deposits and unused gift cards. These are items that can easily be overlooked on handover day.

Practical takeaway: Make sure you are paying not merely for a functioning shop, but for a business you can legally continue to operate. Do not treat the transfer as complete until the franchisor’s approval is secured, liabilities have been reviewed and the necessary usage rights are in place.