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What restrictions are placed on the sale of a franchise?
Louise Harris writes:
Most franchisors will allow a sale to take place at any point in the franchise term. Outgoing franchisees will need to have the approval of the franchisor for the buyer, since they will then become a franchisee. It’s also usual that the outgoing franchisee must not be in breach of their contract.
It’s at this point that the franchise agreement is key, since there can be restrictions that all parties need to be aware of. Common clauses include:
- The franchisor may have the first right of refusal for the purchase of the territory.
- The franchise term for the incoming franchise may not be a whole term, but only the remainder of the outgoing franchisee’s term.
- There may be a legal charge for processing the new franchisee and handling the sale, as well as a transfer charge/sale fee.
- There is likely to be a franchise fee for the purchaser, which covers training.
All this will be documented in the franchise agreement, which franchisees are well advised to check before they sign it, as well as before they contemplate selling.
Louise Harris is an experienced franchisor, having built and sold an award winning franchise. She is now head of strategic partnerships at easyStorage.
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