I’m Selling a Franchise in the UK. When Do I Notify the Franchisor?

Joining a franchise and, in turn, becoming a franchisee can be a particularly beneficial business opportunity. However, in some cases, you may find that selling a franchise is in your best interests. To do so, you will typically sell your rights as a franchisee to a prospective buyer. Although, you should note that this may come with certain obligations, such as notifying the franchisor. This article will explain your obligations as a franchisee when selling a franchise. Furthermore, it will offer you some guidance on letting your franchisor know that you are selling the franchise.

Checking Your Franchise Agreement

The franchise agreement is key to defining your relationship with your franchisor. You enter into a franchise agreement when joining, or setting up a franchise business. Ordinarily, you will sign the franchise agreement alongside a franchise disclosure document. Typically, a franchise agreement will include details of the franchise business you are entering into a relationship with, alongside terms and conditions that outline your obligations. 

For example, the terms of a franchise agreement would state the period for which your franchise business relationship will exist. Further, it may also include provisions for what happens when you decide to sell your franchise business.

Since there is no specific ‘franchise law’ within England and Wales, the terms of your contract will define your franchise relationship. As a result, if the franchise agreement says that you must provide your franchisor with early notice if you plan to sell your share, you must do so. Failure to do so would mean that you are in breach of contract. Consequently, your franchisor can take legal action against you. Therefore, it is critical to have a clear understanding of the terms and conditions of your franchise agreement.

Terms of Your Franchise Agreement

In a franchise agreement, there are some standard terms relating to the selling of a franchise as part of a franchise agreement, which you may encounter. For example, your franchisor may put in a condition which:

• gives them the right to interview and screen new prospective franchisees;
• requires the new franchisee to complete a training programme, which is a cost that you may have to pay;
• compels you to pay a transfer fee;
• requires you to pay the franchisor’s legal costs during this process; and
• requires you to return the operations manual or information concerning any intellectual property you may have due to your agreement.

As a result, even if there is no express condition requiring you to notify your franchisor, it might be good to notify the franchisor early because you may have other obligations.

The Franchisor’s Role in Your Franchise Sale

During the sale of your franchise, your franchisor may decide to contribute in various ways. For instance, the franchisor can assist with several things, such as giving you advice and guiding you through the process. This can be particularly beneficial for you. Additionally, the franchisor may:

• help you ascertain the value of your franchise business and set a price for your sale;
• get you in contact with existing franchisees who have sold their business before; and
• help find prospective new franchisees from a list of potential buyers.

Finally, it is important to know what part of your franchise you are selling. For example, you may decide to sell your current franchise agreement. In contrast, you can get the new franchisee to enter into a new franchise agreement with the franchisor. 

So When Should I Notify the Franchisor?

Firstly, you should check your franchise agreement. If your franchise agreement says that you need to notify the franchisor by a particular time, you must comply with this to avoid breaching your contract. Being in breach of contract means that the franchisor could take you to court.

If there is no written notice condition within your agreement, you should look at your obligations under the terms and conditions. For example, these terms may require that you give your franchisor enough time to screen the new franchisee. 

Furthermore, the franchisor can help you during the process of finding a prospective buyer. Therefore, it is good to notify your franchisor as early as possible. Doing this will help you avoid breaching your contract and ensure that you will likely receive the franchisor’s assistance. It is also a good idea to seek advice from a franchise lawyer if you are unsure about any of the conditions of the agreement.

Key Takeaways

Selling a franchise can be a complicated process, and you may have obligations to your franchisor, such as giving them notice to allow them time to screen new franchisees. To ensure that you are confident in your obligations, you should check your franchise agreement. 

If you need help understanding your franchise agreement, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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