Franchise Agreements

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Selling a franchise business is a much different process than the sale of an ordinary business. There is generally an established procedure for the sale of any branch of the franchise.

This process is usually clearly documented within your franchise agreement under an ‘assignment’ or ‘transfer’ clause, as well as in the operations manual.

If you are considering selling your franchise business, you should consider seeking the assistance of a business lawyer who has experience with franchises. It’s also a good idea to discuss the decision with your franchisor and other franchisees, as they may be able to advise you on how to go about it.

What does the Franchising Code of Conduct say about selling your franchise?

According to the Code, the franchisor must give a disclosure document to the buyer of your franchise.

What are the standard obligations set out in a franchise agreement?

Every franchise agreement is unique. As such, the obligations on the franchisee when selling the business will vary depending on each individual franchise agreement. The transfer clauses might include, but are not limited to, the following:

  • A ‘first right of refusal’ giving the franchisor the right to buy the business back from you before any other potential buyer;
  • The franchisor will more than likely need to give their approval before allowing the franchisee to sell;
  • The costs involved in training up the new franchisee are often be worn by the old franchisee;
  • An assignment fee (which you will need to pay);
  • All accounts must be paid in full before any sale can go ahead;
  • A restraint of trade clause preventing the old franchisee from using any of the franchisor’s intellectual property or competing in any way with the franchise business;

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Please note: “This publication is for information purposes only and does not constitute legal advice. If you have any questions about this or any other commercial legal issue, please contact Helen Kay at Rise Legal.”

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