02 Jan Selling a Franchise
The sale of a franchised business raises some issues which are additional to the usual business sale.
1. The franchise agreement may set out certain matters that need to be dealt with in the contract of sale. It would be a breach of the franchise agreement not to include required clauses. Don’t sign the business sale contract without first ensuring that you have included clauses dealing with all the matters as required by your Franchise Agreement.
2. The franchise agreement will normally specify what process needs to be undertaken to effect the sale. Make sure you comply with the process or seek legal advice.
3. The franchisor will invariably require you to obtain their consent before effecting the sale. This consent must be requested in writing and generally must be accompanied by certain information such as details of the proposed purchaser of the business and the proposed purchase price.
4. The Franchising code requires a franchisor to consent to the transfer of the franchise agreement unless the refusal of such consent is reasonable. Whether the refusal is reasonable is considered objectively. The code sets out a list of circumstances where it may be possible for a franchisor to refuse consent. JJ Riba & Company can provide you with a list of these matters and advise you in relation to how they may affect you.
5. If the Franchisor does not provide consent or does not provide a written notice setting out the reasons why consent is refused then the Franchisor will be said to have given consent.
6. If there is a lease involved, the Franchisor may have control of the lease which can complicate the process of assigning the lease.
7. At an early stage you must determine if the existing franchise agreement will be assigned or whether as an alternative the franchisor will sign a fresh agreement with the purchaser. Many franchise agreements provide that on assignment the franchisor can issue a franchise agreement which is different from your franchise agreement. This can cause concern for a purchaser and so that issue and the current form of franchise agreement needs to be dealt with early.
8. What will your obligations under the franchise be after the date of the sale? Try to obtain a full release of your obligations under your Franchise Agreement.
9. Contact us, we can assist you with all of your franchising requirements.