Can I only sell my franchise to a buyer approved by the franchisor?

Shelley Nadler writes:

Yes. It’s usual for the franchisor to demand the same qualifications and standards for acceptance of a purchaser of a franchisee’s business as applied to direct applicants.

The franchisor will also want to satisfy itself that the purchaser has the financial resources to operate the business, taking into account the buyer’s need to repay any loans they have taken out to purchase the business. The franchisor will want to see a business plan from the buyer and evidence of their financial status.

The criteria by which a prospective purchaser is judged should be set out in the franchise agreement. This usually refers to the buyer having the necessary business experience.

Sometimes this can be just general business experience, but some franchisors may specify that the experience has to be in a certain sector relevant to the franchise.

There is usually a reference to buyers having the necessary ability, which may refer to the skills or characteristics the franchisor is looking for in a franchisee, for example, good communication skills and sales ability.

Another criteria can be compatibility with the franchisor and its management team, where the franchisor is looking for franchisees who will fit in with the culture of the franchise network.

Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.