Selling your Franchise

Are you Permitted to Sell?
It is important to check whether you have approval to sell your franchise. This would depend on the terms of your Franchise Agreement. Most franchises would allow you to sell your franchise but this can only be done with the approval of the franchisor. The approval of the franchisor can not be withheld unreasonably. During the term of the Franchise Agreement you would find that the agreement usually allows you the option of selling but it is on the following terms.

  • The franchisor would probably have first option to buy the franchise from you.
  • The new franchisee that you sell to would need to be approved by the franchisor.
  • The new franchisee would have to undertake training to a standard that is acceptable to the franchisor.
  • Your franchise agreement may have a condition of payment of a transfer fee.

In general, the franchise agreement would continue without any change except it would be under the new franchisees name. At the end of the franchise agreement term a new agreement with new terms and conditions may be put together by the franchisor and negotiated with the new franchise owner.

Your Right to Sell
The franchisor has full control over the franchise that they own. This means that you as a franchisee have limited rights and control over the process where you may want to sell your business. Usually the franchisor has to be given the first right to buy the business but if the franchisor chooses not to do this then you are free to look elsewhere.

It is important for the franchisor to have the right person running the franchise so they would be insisting on approving every aspect of the new franchisee as well as the changes that may be required in the new operation. It is important for the franchisor that the new person has the experience to run the business profitability and they must conform to a standard that is acceptable to the franchise group as a whole.

The franchisor’s right to approve the new business owners is understandable because they would be concerned that the new franchise owner does nothing to destroy all the value that they have built into the franchise over the years. Many franchise agreements would also include a condition that, should a sale take place, a transfer fee is payable by the franchisee to the franchisor. This fee is intended to reimburse the franchisor for any expenses that they incur in the training of the new person.