This article sets out the steps you need to take to sell a franchise business to someone else when you have already entered into a franchise agreement with the franchisor. Each franchise agreement will be different as to the exact requirements, so it is important to get legal advice to make sure you are complying with all of your obligations under the contract.
First offer to the franchisor
So you have decided to sell your franchise and begin the new adventure of your life. The first thing to do is to create a Sale of Business agreement that you will offer to a potential buyer. It is likely that your franchise agreement will require you to offer your franchise business to the franchisor for the opportunity to purchase before anyone else. This is called the ‘First Right of Refusal.’ The franchisor will then consider the terms of your agreement and is usually given about three weeks to either accept or reject your offer.
If the franchisor accepts your offer, you both will enter into a formal contract of purchase, which is usually signed within seven days. If they reject your offer, they may make a counteroffer, which is when you can consider their proposal and choose to accept or reject their counteroffer. If you accept, you will enter into the formal contract of purchase as above.
If you reject their counteroffer, or they either don’t respond to your original offer or reject it outright, then you can find another buyer.
Offer to an alternative buyer
When you have found another buyer, then you both enter into a contract for them to purchase your franchise. The next step will be for the franchisor to approve the buyer. They usually have a certain period of time to do, during which they must approve or reject the buyer. If they don’t respond, it means the buyer will be automatically approved.
Before the franchisor makes a decision about the buyer, there are many steps to go through. Because assessing the buyer is quite an extensive process, the franchisor will usually require a few hurdles to be met first. For example, the buyer will often need to put down a deposit on the purchase and will have to complete training for the franchise, pay certain fees and acquire the appropriate licence to operate the franchise. They also need to be able to take over your lease and be approved by your landlord.
At this point, the franchisor will be able to assess if the buyer can meet all of the requirements. They are not able to unreasonably withhold their approval, so if the buyer can meet the requirements, they will be approved, and a date for the sale of the franchise will be set.
Transferring the franchise
Upon setting the date of the sale, you will need to make sure you pay any outstanding payments, securities and costs owing to the franchisor. When you sell a franchise to a new buyer, it effectively means that you are transferring the franchise to them. You will usually be responsible for covering the costs of transferring your franchise to the new buyer and any associated training fees. This must all be completed at least two days before the date of the transfer. At the time of transfer, both the new buyer and the franchisor will enter into a new franchise agreement. They will then become the new franchisee and the transfer of your franchise will be complete.
LegalVision has specialist franchise lawyers that can guide you through this process and make the transfer of your franchise go as smoothly as possible so you can start the next phase of your life. Give us a call today on 1300 544 755 or fill out the form on this page.
Was this article helpful?
We appreciate your feedback – your submission has been successfully received.