Why You Need A Franchise Sale Agreement

There’s a lot to consider when you’re selling a business. Things become even more complicated when your business is an individual franchise, because you’ll need to be negotiating with the franchisor as well as the purchaser. 

A franchise is a type of business structure whereby the owner of a business (the franchisor) licenses others (the franchisee) to use the business’ trade name and operating structure. 

If you are an existing franchisee and are hoping to sell your business to a new franchisee, it’s a good idea to have a clear Franchise Sale Agreement in place.  

Why Do I Need A Franchise Sale Agreement?

A Franchise Sale Agreement is a legally binding agreement that formalises the sale of an individual franchise.

A Franchise Sale Agreement will address your obligations as a franchisee, confirm your rights to payment and ensure you are protected from liability for any issues that may occur after the sale. If you don’t have an agreement in place, you run the risk of retaining liability for the business down the track. 

It’s also important to articulate the details of the sale to ensure there is no ambiguity between parties. Having clear terms regarding the purchase amount and assets included in the sale will avoid any potential disputes and facilitate smooth relations.

What’s Included In A Franchise Sale Agreement?

A Franchise Sale Agreement covers all of the important terms to make sure parties’ are aware of their rights and obligations during and after the sale. These include:

• Purchase amount
• Assets included in the sale
• Additional details negotiated with the purchaser and franchisor

What Franchising Laws Should I Be Aware Of?

When it comes to selling your franchise, the Franchising Code of Conduct covers key areas. For example, it sets out certain processes to follow at the end of a franchise agreement, such as transferring the franchise agreement or signing a completely new one.

You’ll also need to obtain the franchisor’s consent if you want to sell. The Code also sets out important rules around this, such as how consent cannot be unreasonably withheld.

You may remember the process that was undertaken when the franchise was sold to you as a franchisee. Well, a similar process now needs to be done for the new franchisee you’re selling to. You’ll need to sort out things like:

• Disclosure Document
• Franchise Agreement
• Information Statement
• Copy of the Franchising Code of Conduct
• Non-Disclosure Agreement or a Confidentiality Agreement
• Deposits
• Cooling-off period

Generally, you’ll need to provide potential franchisees with the relevant franchising documents to hit the ground running once everything is transferred.

Need Help? 

Even if you have already agreed on terms with the potential buyer and franchisor, it’s a good idea to have an experienced lawyer draft a Franchise Sale Agreement. Our lawyers will clearly set out the terms of sale and will also provide advice and make recommendations to ensure you’re protected in the event of any disputes. Alternatively, if you haven’t decided on terms yet, our lawyers can advise you on the best way to protect yourself down the track.

Feel free to get in touch either at team@sprintlaw.com.au or at 1800 730 617 for a free, no-obligation chat.

Maddison Turansky

Maddi is a law graduate at Sprintlaw. She has previously worked in commercial litigation, intellectual property law, and creative industries while working towards her Law and Creative Writing degree at the University of Technology Sydney.