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When the owner of the franchise system changes

Franchise owners can usually sell their business at any time

Franchise agreements usually allow:

  • the franchisor to sell the franchise system at any time
  • franchise ownership to change without the franchisees having a right to approve the new franchisor.

In some cases, such as when the franchisor becomes insolvent, the franchisor doesn’t have a choice. In these cases, the franchisor must give up control of the entire franchise system.

The new owner may want to change things

The new owner may want to change things in the franchise system.

For example, the new owner might:

  • have a different plan for the franchise system, which impacts the business decisions they make for franchisees
  • want to introduce new fees or changes
  • change the brand or image
  • change operating procedures
  • offer less support to franchisees
  • not continue informal commitments or arrangements the previous owner had with franchisees.

Franchisees should understand their rights

Before signing, franchisees should understand the rights that the franchisor has to sell or leave the franchise system. They must also consider how this change will affect them.

Franchisees should be aware of what may happen if the owner of the franchise changes during the term of their agreement. Franchisees need to know if there is anything they can do if they are not happy with the change in ownership or with the changes that the new owner makes.

Franchisees can speak to a lawyer for advice about their rights and obligations in this situation.

Franchisor obligations if ownership is going to change

If the owner of the franchise system is changing, the franchisor should tell franchisees as early as possible. Franchisees are likely to be worried about a big change and have questions.

Franchisors must tell franchisees as soon as possible, and no more than 14 days after they become aware if:

  • there is a change in majority ownership or control of the franchisor, or an associate of the franchisor, or the franchise system
  • there is an insolvency event.
Franchisor obligations under the Franchising Code of Conduct and other laws still apply.
Franchisors must act in good faith and can’t mislead franchisees about the future of the system.