How do you sell a franchise?

How do you sell a franchise?

Your ability to sell/transfer the franchise and the procedures which must be followed are detailed in the Franchise Agreement and the Franchising Code. Following the requirements in these documents will ease the transfer of your franchise and limit the potential for a dispute to arise as a result of the sale.

Procedures under the Franchising Code

Under the Franchising Code, the following procedures must be followed by the franchisee in order to sell the franchise:

  1. Request consent: The franchisee must request the franchisor’s consent in writing to transfer the franchise. The request must include all information which would reasonably be expected and required for the franchisor to make an informed decision. The franchisor may also request additional information.
  2. Receiving consent: The franchisor’s consent and any conditions on it must be provided in writing. 
  3. Withdrawing consent: The franchisor can withdraw consent within 14 days of granting it by informing the franchisee in writing of this decision and providing reasons. 
  4. Consent by default: If the franchisor has not responded to the request for consent within 42 days, consent is taken to have been granted and consent cannot be withdrawn in this circumstance. 

Withholding or revoking consent: Consent cannot be unreasonably withheld or revoked under the Code. The Franchising Agreement may detail circumstances where it is reasonable to withhold consent. An example where it may be reasonable is if the franchisor reasonably believes that the proposed transferee is unable to meet their financial obligations. 

Additional requirements under the Franchise Agreement

It is likely that the Franchise Agreement places additional obligations on the franchisee when selling the franchise. Each Franchise Agreement is tailored to the particular business, so you will need to refer to your agreement and potentially seek legal advice on how to comply with the requirements for transfer. Here are some examples of additional obligations:

  • A right of first refusal: This gives the franchisor the option to purchase the franchise before it is sold to a third party
  • Payment of an assignment fee to the franchisor (fee for selling the business)
  • Pay the franchisor’s costs for any work required by them for the sale
  • The franchisee must have paid any amount owing to the franchisor in full
  • The potential buyer may be required to have an interview with the franchisor
  • The potential buyer may need to provide the franchisor with a statement of their assets and liabilities

Key Takeaway

The Franchising Code has important procedures around receiving the franchisor’s consent in order to proceed with the sale of a franchise. The Franchising Agreement is likely to place additional obligations on the franchisee in order to sell. Both documents must be carefully understood to ensure the sale goes ahead smoothly.  

If you need advice on the sale of your franchise, get in contact with us on 1300 337 997.

About Brigid Nelmes

Brigid NelmesBrigid is a legal intern at OpenLegal, working with our legal content team. She is currently completing her Bachelor of Laws and Bachelor of Arts (International Studies) at the University of Technology Sydney. Her interests are in digital/privacy and startup law.