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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 ends, it may mean:
- transferring the current franchise agreement to a new franchisee
- the franchisor requiring the new franchisee to sign a new franchise agreement for the remainder of the old franchisee’s term.
Consent of the franchisor to sell
The franchisee must ask for the franchisor's consent to sell in writing
The franchise agreement and the franchisor’s consent may say that the franchisee must meet certain conditions. For example, the franchisee may have to pay an assignment fee to the franchisor and fix any defects at their premises.
If a franchisor advises in writing to consent to a transfer, a franchisor may cancel their consent within 14 days of granting it. They must tell the franchisee in writing of the change of mind and set out the reasons. However, a franchisor must not unreasonably take back their consent.
Franchisees can assume that the franchisor has consented to the transfer if the franchisor hasn’t told the franchisee in writing they refuse to consent to the transfer within 42 days after the later of:
- the date the franchisee asks to transfer the agreement, or
- if the franchisor asks for more information, the date they get the last piece of that information.
Franchisors cannot take back their consent in this circumstance.
Franchisors cannot unreasonably withhold their consent
There are reasons a franchisor may withhold their consent to a transfer, but they must not be unreasonable.
Some of the reasons a franchisor may withhold consent:
- the new buyer does not meet the selection criteria of the franchisor
- the current franchisee has breached the agreement and has not remedied their breach
- the current franchisee owes money to the franchisor.
Buyer change of mind
A person buying a franchise from an existing franchisee has a cooling-off period. They can change their mind about buying the franchise within this cooling-off period.
The value of the franchise business
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. This can happen with any brand.
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.