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When a franchisee wants to sell during the term of their agreement

When a franchisee wants to sell their business before the term of their agreement is up, it may mean:

  • transferring the current franchise agreement to a new franchisee, or
  • the franchisor may require the new franchisee to sign a new franchise agreement for the remainder of the old franchisee’s term.

When a franchisee sells their business to a new franchisee, what they are really selling is the right to operate the business under a brand. This means that the value of the existing business to a new buyer can significantly reduce over time.

Because of this, the franchisee who is selling may not be able to sell the franchised business for how much they think the business is worth.

Consent of the franchisor to sell

Must ask the franchisor for their consent to sell

The franchisee has to ask the franchisor’s consent to sell.

The franchise agreement may say that they first must meet certain conditions. For example, the franchisee may have to pay an assignment fee to the franchisor and rectify any defects at their premises.

Franchisees can assume that the franchisor has consented to the transfer if they haven’t objected within a certain period specified in the Franchising Code of Conduct.

A franchisor may cancel its consent to a transfer within 14 days of granting it by telling the franchisee in writing of the change of mind and setting out the reasons. However, a franchisor must not unreasonably take back their consent.

Reasons to withhold consent can't be unreasonable

Franchisors cannot unreasonably withhold their consent to a transfer.

There are reasons a franchisor may withhold their consent, but they must not be unreasonable. They can include:

  • the buyer does not meet the selection criteria of the franchisor
  • the seller or current franchisee has breached the agreement and has not remedied their breach
  • the seller or current franchisee owes money to the franchisor.

The buyer can change their mind

A person buying a franchise from an existing franchisee has a cooling off period in which they can change their mind about buying.