Under the Franchising Code of Conduct, there are certain obligations on franchisors to allow the franchisee to transfer a franchise business. In other words, unless there is some rational basis for denying the franchisee the right to transfer, consent may not be unreasonably withheld by the franchisor.
What constitutes a transfer?
Under the Code, a ‘transfer’ is defined as including the granting, selling, or transfer of the franchised business. If you are unsure about how the transfer provisions apply, you may want to get some advice from a franchise lawyer.
When is it reasonable to deny a franchisee’s request to transfer?
According to the Franchising Code of Conduct, there may be a number of circumstances under which the franchisor may deny a franchisee’s request to transfer the franchised business, including the following:
- If the franchisee has breached the terms of the Franchise Agreement, and this breach has not been remedied by the franchisee;
- If the franchisee owes money to the franchisor, and has not repaid, or made any attempt to repay, the debt. These debts may constitute any ongoing fees (marketing fund contributions, royalties), or be the transfer fee itself (a fee which represents a percentage of the total sale price);
- The prospective transferee has not agreed, in writing, to be bound by the terms of the Franchise Agreement – specifically the franchisee’s obligations. In other words, the prospective transferee is seeking to vary the terms of the Franchise Agreement;
- If, by transferring to the prospective transferee, the entire franchise network will be significantly adversely affected;
- If the prospective transferee does not satisfy the franchisor’s selection criteria;
- If the prospective transferee has not been able to satisfy a reasonable requirement under the Franchise Agreement to complete the transfer; or
- The prospective transferee will not be able to afford the financial obligations under the Franchise Agreement.
The Franchise Agreement
If there is to be some change in control of the business or a transfer of shares, this will normally be regarded as an assignment/transfer under the Franchise Agreement, which will activate the ‘transfer’ conditions under the Agreement.
Are you a franchisee looking to transfer a franchise business to a new purchaser? Have you checked the transfer provisions to see whether you will need to pay a transfer fee? For assistance with making your transfer effective, contact LegalVision on 1300 544 755, and have a chat with one of our team of franchise lawyers today. They will be able to guide you through the process to transfer a franchise without facing any unnecessary complications along the way.