Franchise businesses can be a great investment, but there may come a time when you decide to sell. Whether you’re looking to retire, switch industries, or simply move on, selling a franchise business requires careful planning and legal understanding.
The process is different from selling an independent business because you don’t own the brand—you operate under a franchisor’s rules.
To sell your franchise successfully, you must follow the relevant legal requirements, obtain the franchisor’s approval, and ensure that both you and the buyer meet all obligations. This guide explains everything you need to know about selling a franchise business in Australia.
I. What Legal Steps Are Required to Sell a Franchise Business in Australia?
Selling a franchise business isn’t as simple as handing over the keys to a new owner. There are several legal steps involved to ensure the sale is valid, compliant, and approved by the franchisor.
1. Review Your Franchise Agreement
The franchise agreement is the contract between you and the franchisor. It will outline the specific terms regarding how you can sell the business, what approvals are needed, and whether there are any transfer fees or conditions. It is important to review the franchise agreement so you have an understanding of what you can and cannot do when selling. For instance, some agreements have strict rules about who can buy the franchise.
2. Inform the Franchisor
Most franchise agreements require the seller to notify the franchisor before listing the business for sale. The franchisor often has the right to approve or reject potential buyers.
3. Prepare Your Business for Sale
Before selling, you need to ensure your business is financially healthy and attractive to buyers. This includes:
- Organising financial statements
- Reviewing lease agreements
- Ensuring compliance with franchise obligations
- Updating business records
4. Find a Buyer Who Meets the Franchisor’s Criteria
The franchisor will likely have strict criteria for new franchisees, such as financial stability and relevant experience. It’s important to find a buyer who meets these requirements to avoid delays.
5. Obtain the Franchisor’s Approval
Once you have a potential buyer, they must apply for approval from the franchisor. This may involve background checks, financial assessments, and training.
6. Draft a Sale of Business Agreement
This is a legally binding contract between you and the buyer. It should outline:
- The purchase price
- Payment terms
- Transfer of assets
- Ongoing obligations
A business sale lawyer should draft or review this agreement to ensure it protects your interests.
7. Finalise the Transfer and Settlement
Once all approvals are obtained, settlement occurs. The buyer takes over the business, and legal ownership transfers. The franchisor will often require the buyer to sign a new franchise agreement, which may have updated terms.
II. What Are the Key Franchise Agreement Clauses That Affect the Sale?
Your franchise agreement will contain several clauses that directly impact how and when you can sell your franchise business. Understanding these clauses is crucial for a smooth sale.
1. Transfer and Assignment Clause
This clause outlines your right to sell the business and any conditions the franchisor may impose. It typically states that the franchisor must approve the buyer before the sale can proceed.
2. Right of First Refusal
Some franchisors have the right to purchase your franchise before you sell it to an external buyer. If this applies, you must first offer the business to the franchisor, who can either match the buyer’s offer or allow the sale to proceed.
3. Transfer Fees and Costs
Selling a franchise often involves paying fees to the franchisor. These can include:
- A transfer fee (a percentage of the sale price or a fixed amount)
- Training fees for the new franchisee
- Legal or administrative costs
4. Buyer Qualification Requirements
The franchise agreement may specify that the buyer must meet certain financial or experience-based qualifications before being approved. This ensures that the new owner is capable of running the business.
5. Restraint of Trade Clause
After selling, you may be restricted from opening or working for a competing business within a certain area or time frame. This is to prevent former franchisees from taking customers and competing directly with the franchise.
Also Read: Buying an Existing Business Checklist: Key Considerations
III. How Do I Obtain Franchisor Approval for the Sale?
The franchisor’s approval process is a key step in selling a franchise business. Without it, the sale cannot proceed. Here’s what you need to do:
1. Notify the Franchisor Early
As soon as you decide to sell, inform the franchisor, as some agreements require written notice months in advance. Communicating as early as possible helps to avoid delays later in the process.
2. Provide Buyer Information
The franchisor will want details about the buyer, including their financial background, business experience, and reasons for purchasing the franchise.
3. Ensure the Buyer Undergoes Training
Most franchisors require new franchisees to complete a training program before taking over. This ensures they understand the brand standards and operational procedures.
4. Comply with Transfer Requirements
You and the buyer must fulfil all obligations outlined in the franchise agreement, such as paying transfer fees and signing necessary documents.
5. Obtain Written Approval
Once the franchisor is satisfied with the buyer’s qualifications and all conditions are met, they will issue written approval for the transfer. The buyer will then sign a new franchise agreement.
Need Legal Help? Talk to Walker Pender Today
Selling a franchise business requires careful planning, legal knowledge, and franchisor cooperation. By understanding your franchise agreement, securing an approved buyer, and following legal requirements, you can ensure a smooth transition.
Seeking legal advice early in the process helps protect your interests and prevents costly mistakes.
It can be complex, but you don’t have to do it alone. At Walker Pender, our expert business sale lawyers help franchisees through every step of the process, ensuring compliance and a smooth transition.
Whether you need contract review, franchisor negotiations, or legal protection, we’re here to assist. Contact us today for expert guidance on selling your franchise business.
