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What is a franchise resale?

What is a franchise resale?

answered by Shelley Nadler

Legal director at Bird & Bird

A franchise resale is when you buy an existing franchise business as a going concern from a franchisee with the rights to operate the franchise. It could be a sale of a company or a sale of the assets of the franchisee’s business. It is usual for a franchisee to be given the right to sell its franchise business and this right should be set out in the franchise agreement. When you buy an existing franchise business from a franchisee, you will be dealing with two parties - the franchisee from whom you are buying the business and the franchisor of that franchisee. You will negotiate the purchase price and the terms of the sale with the franchisee, however you will still need to be approved by the franchisor.Most franchises require the franchisee to be trained and some require a specialist area of knowledge. The new franchisee will be required to undergo any necessary training and provide the same standards of service as if there had been no change of franchisee. The new franchisee will have to be acceptable to the franchisor as if he had applied directly to it to join its network. It is usual for the franchisor to demand the same qualifications and standards for acceptance of a purchaser of the franchisee’s business as being applied to direct applicants to the franchisor for a franchise.You should make the same checks on an existing franchise as you would do with the purchase of a new franchise. In particular, you will want to evaluate the seller’s trading history and their reasons for selling the business. If premises are necessary for the franchise, you may be required to take over the existing franchisee’s lease. You will also need to check if you will have to pay any fees to the franchisor on joining the franchise - for training, for example. It is essential you take advice from an accountant and a British Franchise Association affiliate lawyer on all of these issues.

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