A 'Franchise Resale' is where an existing franchisee sells its business to someone else who takes over the franchise business and becomes the new franchisee. A sale of the franchise is the best exit that a franchisee can achieve from the franchise relationship as it allows them to sell their business on for a profit and receive a good return on the investment that they have built up.
A franchisee cannot sell their business to just anybody. As the purchaser is going to join the franchise network of the franchisor, the purchaser has to be someone who meets the franchisor's requirements and has been formally approved by them. All well drafted Franchise Agreements will have a detailed clause dealing with this approval mechanism.
As with any business sale, a Franchise Resale involves detailed legal documentation. Usually this would involve the purchaser's solicitor drafting a purchaser-friendly Business Purchase Agreement, then the Seller's solicitor revising this the other way to attempt to make it a seller-friendly document. This can often involve lots of negotiation back and forth until a final version is agreed.
To avoid this, a Franchise Resale process should be controlled by the Franchisor. The Franchisor's solicitor should provide the purchaser and seller with a "balanced" Business Purchase Agreement which is reasonable to both the Purchaser and Seller (and, protects the Franchisor's own interests). This agreement can then be provided to the parties to negotiate any commercial terms, however the document that the Franchisor's solicitor prepares should be used. In addition to the Business Purchase Agreement, the Franchisor should provide the outgoing franchisee with a 'Termination and Release Agreement' to sign which formally brings the original franchise agreement to an end and it goes without saying that the incoming franchisee should sign a new franchise agreement.
We provide a comprehensive Franchise Resale service which controls this sale process and keeps the interests of the Franchisor protected. Further, all the Franchisor's costs in assisting with the Franchise Resale process should be borne equally between the Purchaser and Seller, so the Franchisor is never out of pocket.
If you have a franchisee seeking to sell their franchise, please give us a call now to discuss our Franchise Resale service in more detail.