What’s a transfer fee?

A transfer fee is the fee a franchisor charges to the franchisee if the franchisee sells the business or shares in the company operating the franchise. It will be more difficult for the franchisee to sell the franchised business than it would be to sell a non-franchised business, as the buyer will have to be approved by the franchisor.The level of the fee and the restrictions on the franchisee’s rights to sell the business or shares will be set out in the franchise agreement. The transfer fee should reflect the fact that the franchisor will have to provide training and other services to the buyer.The franchisor will also usually require the franchisee to pay the costs it incurs in evaluating the proposed buyer and assessing whether or not to exercise any first option it may have to purchase the franchisee’s business or shares. If the franchisor has this right, the details and mechanics of it will be contained in the franchise agreement. If the franchisor has introduced the buyer to the franchisee, it may also charge a finder’s fee to reflect the fact that it will not receive an initial fee.