Franchise system change of ownership

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

For example, the new owner may:

have a different plan for the franchise system, which impacts the business decisions they make for franchisees
want to introduce new fees or charges
change the brand or image
change operating procedures
offer less support to franchisees
end informal commitments or arrangements the previous owner had with franchisees.

There are 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.

Franchisees should understand their rights

Before signing, franchisees should understand how a change in franchise ownership would affect them and there is anything they can do if they are not happy with the change in ownership.

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