Selling a franchise business

Selling a business that is subject to a franchise agreement involves additional considerations. If you are a franchisee, you will need to consider your obligations to the franchisor before you sell or transfer your business. This article outlines some of the things to consider before selling a franchise business.

Review the franchise agreement

Before you start looking for a buyer it’s important to review the terms and the conditions of the franchise agreement that relate to selling or transferring the business.

You should consider:

• Is there a first right of refusal? It is common for a franchisor to have a first right of refusal to buy the business. If this applies you may need to offer to sell the business to the franchisor before you attempt to sell it to a third party. If you are considering a lower offer than the offer the franchisor initially rejected, you may need to repeat this process.
• How do you need to request consent to the transfer? If there is a specified form for you to request consent (i.e. in writing) you will need to provide the request in this form.
• What information needs to be provided to the franchisor about the buyer? You should make sure you obtain all the information specified in the franchise agreement about the buyer to provide this to the franchisor. The franchisor may request further information.
• Does the buyer meet the franchisor’s criteria for becoming a franchisee? There may be conditions or criteria about who can become a franchisee. This may be different from when you became a franchisee.
• Are there timeframes you need to comply with? Make sure any timeframes in the business sale agreement are consistent with the timeframes specified in the franchise agreement for the franchisor to approve the transfer.
• Is there a transfer fee? A fee may be payable to the franchisor on any sale, transfer or change of control of the business.
• Have you complied with all obligations and paid all fees due? It is usually a requirement in order for the franchisor to provide consent to the transfer that you are not in breach of the franchise agreement and have paid all amounts due to the franchisor.
• Does the business sale agreement adhere to the franchise agreement? The agreement to sell the business should align with the franchise agreement so that you will not accidentally be in breach of the franchise agreement in order to comply with the sale agreement or vice versa.

Franchisor consent under the Franchise Code

The Competition and Consumer (Industry Codes-Franchising) Regulations 2024 (Franchise Code) contains provisions around when the franchisor must consent to a transfer of the business. The franchisor must not unreasonably refuse a request for consent of a transfer, but they may refuse to consent if it is reasonable to do so. The franchisor must advise whether they consent to the transfer within 42 days from the later of the date a request is made, or if the franchisor seeks further information, from when that information is provided.

Post-sale obligations

Certain obligations of the franchise agreement may continue to apply to you after you have sold the business. You should review the franchise agreement to make sure you comply with these. For example, it is common for there to be a restraint of trade clause which may prevent you from being involved in a similar business.

Change of control

The terms of a franchise agreement relating to a transfer will often also apply to a change of control. If you are considering any sort of restructure, it is important to review your obligations under the franchise agreement and seek legal advice.

Page Seager Lawyers can assist with selling or restructuring a franchise business, or any other franchising enquiries you may have.