Reading time: 6 minutes

Selling your franchise is a major commercial and financial decision. There are many reasons you might decide to sell your franchise. You may:

  • be looking to move on or retire;
  • have people interested in purchasing the business for more than you paid; or
  • be looking to recover your investment or prevent further debt if things are not going well.

Whatever the reason, the sale must be executed in a certain way. This article explains how the process works.

Obligations Under the Franchise Agreement

The franchise agreement, disclosure document and operations manual explain how the sale will take place. When selling your franchise, you are transferring the rights and obligations you hold under the franchise agreement to the purchaser.

Before you sell your franchise, the proposed purchaser will be vetted by the franchisor. The vetting process will evaluate their financial position and make sure that they will be able to operate the business successfully. The franchisor must agree to the purchaser before the sale takes place. Under the Franchising Code of Conduct (the code), a franchisor cannot stop you from selling your franchise to someone without good reason.

However, the franchisor may be able to stop you from selling your franchise to someone if:

  • the purchaser cannot meet their financial obligations under the franchise agreement;
  • the purchaser does not meet any other reasonable requirements under the franchise agreement;
  • you owe the franchisor money;
  • the purchaser does not meet the franchisor’s selection criteria;
  • the purchaser does not agree to follow the franchise agreement;
  • you have not followed the franchise agreement; or
  • the purchaser has not had the chance to read and understand the franchise agreement and the code.

When you decide to sell your franchise, try to maintain a good working relationship with your franchisor. Remember that the purchaser will be working with the franchisor for the remainder of the agreement.

First Right of Refusal

Your franchise agreement gives your franchisor the first right of refusal. Having first right of refusal means that your franchisor can buy the franchise from you themselves, either when you decide to sell or once you have found a purchaser. The franchisor is allowed to buy your franchise on similar terms to the deal you have agreed with the purchaser. First right of refusal is unlikely to affect your sale, but you should keep it in mind if you plan to sell the franchise at a reduced price to a friend or business partner.

Which Documents Are Required?

Every franchise is different. However, the sale of every franchise must follow the correct process. You will need several legal documents to complete the sale of your franchise. These include:

1. Sale of Business Agreement

The sale of business agreement explains the terms of the franchise agreement and officially makes the purchaser the new owner of the franchise. It also means that you are not held responsible for anything that the purchaser might do after the sale takes place. Make sure that the terms of the agreement are very clear to avoid disputes.

2. Deed of Surrender and Release

The deed of surrender and release allows you to leave the franchise agreement that you signed when you took on the franchise. To avoid having any debts or responsibilities after the sale, make sure you carefully review this document.

3. Lease Assignment

If you run your franchise at a particular location, such as a shop or building, you may have signed onto a lease for these premises. Depending on who signed the lease, a lease assignment may be necessary to transfer the lease to the purchaser. If you did not sign the lease yourself, the franchisor may have signed a ‘head lease’. This is the primary lease for the premises. In this case, you may have signed a sub-lease or licence under the primary lease.

There are two common scenarios for assigning leases. The process depends on whether:

  • you hold the lease yourself, in which case your landlord will need to assign the lease to the purchaser and sign the lease themselves as well as obtain a signature from you and the purchaser; or
  • you signed a sub-lease or licence, in which case the franchisor can release you from your sub-lease or licence through a deed of assignment and surrender.

The type of lease you have entered will also affect how a lease can be assigned. For example:

  • A retail lease cannot be refused assignment to the purchaser without good reason. However, the landlord will require documents from the purchaser such as financial statements, business history and professional references before the lease is assigned; and
  • A commercial lease may not allow assignment. It is best to speak with your landlord early about assigning a commercial lease.

4. Equipment Leases

If you use rented or leased equipment, you will have to transfer or assign the use of this equipment to the purchaser.

You can do this:

  • through a deed of assignment; or
  • by surrendering the lease.

If you surrender the lease, the purchaser can apply for the lease themselves.

Post-Sale Considerations

You should also think about your plans once the sale takes place. Your agreement may contain a restraint of trade clause, which stops you from working in a similar business to the one you have left within a set time period after the sale. Restraint clauses must be reasonable. For example, they cannot extend for an unreasonable length of time or restrict you from trading far away from the business. If a clause is unreasonable or unfair, you may be released from it.

Key Takeaways

Selling your franchise is an important financial and commercial decision. If you are ready to sell, you will need to prepare several documents. There are agreements to be released from and assigned. These include:

  • a franchise agreement;
  • your lease; and
  • any equipment rental agreements.

Follow all the correct procedures to avoid having any ongoing obligations after the sale. You should also check that any restraints in your agreements will not affect your plans for the future.

If you have any questions about selling your franchise, you can contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.


Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Matthew DeRusha
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards