Selling a Franchise Business

How to sell a franchise business in Australia

When you sell a franchise business, you must follow the process set out in your franchise agreement - and you'll also need a carefully drafted business sale agreement that meets franchisor requirements while protecting your interests.

 

Exit A Franchise Services

What are the steps to selling a franchise business?

  1. Review the Franchise Agreement
    Check the requirements for sale, including any right of first refusal, transfer fees and conditions.
  2. Find a Buyer
    Market your franchise business and negotiate the key commercial terms of the sale.
  3. Obtain Franchisor Approval
    Seek the franchisor's consent to the proposed purchaser in accordance with your Franchise Agreement and the Franchising Code.
  4. Document the Sale
    Negotiate the Business Sale Agreement and arrange the transfer or surrender of your Franchise Agreement and any lease.
  5. Complete the Sale
    Satisfy the conditions of sale, complete settlement and ensure you are released from your ongoing obligations where appropriate.

Before the Sale of Your Franchise Business

 

Check Your Franchise Agreement before Selling

Before putting your franchise business on the market, carefully review your franchise agreement.

Unlike the sale of an independent business, a franchise sale is subject to the conditions set out in the franchise agreement (and governed by the provisions of the Franchising Code).

Your franchise agreement will contain some or all of the following obligations:

  • offer to the franchisor (the right of first refusal);
  • franchisor approval;
  • sale conditions;
  • lease assignment;
  • entry into a surrender deed/agreement.

 

The Franchisor's right of first refusal

If your franchise agreement contains a right of first refusal, this means that you will have to offer the franchise business for sale to the franchisor, before you are able to sell the franchise business to a third party.

Some franchise agreements contain a set price to be paid or a "formula" for calculating the sale price, if the franchisor decides to buy the franchise business.

If the franchisor does not exercise its right of first refusal (that is, the franchisor does not agree to buy the franchise business), then you will be able to sell the franchise business to a third party, subject to certain conditions, including franchisor consent.

Franchisor consent is governed by the Franchising Code, which we refer to below.

 

Other Conditions of Sale 

Apart from the approval of a potential purchaser by the franchisor, the other general conditions of selling a franchise business which are likely to be in a franchise agreement include:

 

Payment of all Outstanding Amounts

If there are any amounts outstanding to the franchisor under the terms of the franchise agreement or any other agreement with the franchisor, the franchisor will require these amounts to be paid before the franchise business is transferred.

 

Payment of a Transfer Fee

In addition to any amounts outstanding under the terms of the franchise agreement, if you sell your franchise business you will need to pay a transfer fee to the franchisor. The amount of the transfer fee (or the formula used to calculate the amount of the transfer fee) will be set out in your franchise agreement.

 

The Cost of Training the Purchaser

Some franchise agreements require you to pay to the franchisor the cost of training the purchaser. If your franchise agreement contains such an obligation, speak to the franchisor to find out what the training fee will be.

 

Breaches of the Franchise Agreement

Most franchise agreements require you to remedy any breaches of the franchise agreement as a condition of franchisor consent/sale.

 

Surrender Deed

A franchise agreement will often require you to enter into a Surrender Agreement/Deed if the franchise business is sold. We refer in more detail to Surrender Agreements/Deeds below.

 

If the transfer conditions in the franchise agreement are unreasonable, there may be a risk of these terms being void under the Unfair Contract Terms regime.

 

Find a Buyer

Once you understand the requirements for selling your franchise, the next step is to find a suitable buyer.

You may choose to market the business yourself or engage a business broker to assist with the sale.

Before providing detailed financial, operational or commercially sensitive information to a prospective purchaser, consider whether a confidentiality agreement should be in place.

When negotiating with a buyer, remember that any proposed sale will usually need to remain subject to the franchisor's approval and any other conditions required by your Franchise Agreement. Avoid making unconditional commitments to a purchaser until you understand what approvals and steps are required to complete the sale.

 

 

Obtain Franchisor Approval

Once you have found a buyer for your franchise business, you will need to obtain franchisor approval. The consent to the transfer of your franchise business will be governed by both the terms of your franchise agreement and the Franchising Code of Conduct (the Franchising Code).

 

Franchisor Consent to the Sale of the Franchise Business

Sections 48 and 49 of the current Franchising Code set out the procedure for requesting and obtaining franchisor consent (for franchise agreements entered into prior to 1 August 2025, different provisions will apply, although the process is the same).

Section 48 of the Franchising Code requires you to make any request for franchisor consent in writing and in addition, provide the franchisor with all of the information that the franchisor would reasonably require to make an informed decision.

Section 48(3) of the Franchising Code allows the franchisor to request further information in writing, if that information is required by the franchisor to make an informed decision. 

The franchisor will be taken to have given its consent if you have followed the process set out in section 48 and the franchisor has not:

  • given its consent to the transfer within 42 days after the request is made; or
  • if the franchisor has requested further information, the franchisor has not given its consent to the transfer within 42 days after the last of the information has been provided.

If the franchisor consents to the transfer, the franchisor can revoke the consent on reasonable grounds within 14 days by written notice (stating the reasons for the revocation) (section 49(4)). However, section 49(4) of the Franchising Code does not apply to deemed consent. That is, if the franchisor is deemed to have given consent under the provisions of the Franchising Code, that consent cannot be revoked.

 

Withholding Consent to a Transfer of the Franchise Business

The provisions of the Franchising Code provide that the franchisor cannot unreasonably withhold consent or approval to the transfer of the franchise business.

What is reasonable or unreasonable will depend on the circumstances of each case.

Section 49(6) of the Franchising Code sets out a number of circumstances in which it is reasonable for the franchisor to withhold consent or approval. These include if:

  • the potential purchaser is unlikely to be able to meet the potential financial obligations under the terms of the franchise agreement;
  • the potential purchaser does not meet the selection criteria of the franchisor;
  • the potential purchaser does not meet a reasonable requirement of the franchise agreement for the transfer of the franchise agreement;
  • the franchisee has not paid or made reasonable provision to pay an amount owing to the franchisor;
  • the franchisee has not remedied a breach of the franchise agreement.  

In addition to the "reasonableness" requirement, the franchisor must also act in good faith (required by section 18 of the Franchising Code) in making a decision to give or withhold consent.

The Sale of the Franchise Business

Once you have successfully navigated the pre-sale process, you will need to prepare a business sale agreement and in some circumstances arrange for the assignment of your lease.

 

Business Sale Agreement - Franchise Sales

If the franchisor approves the potential purchaser you will need to prepare a business sale agreement for the sale of the franchise business.

The business sale agreement should contain conditions which are specific to the sale of your franchise business. For example, the business sale agreement will be subject to the consent of the franchisor to the transfer of the franchise agreement.

The franchisor may require the business sale agreement to be in a particular form, or may require the business sale agreement to contain particular provisions. 

Our article Navigating the Legal and Financial Aspects of Selling your Franchise Business in Australia, considers in more detail the provisions to be included in the business sale agreement.

 

Transfer of the Franchise Agreement

The sale of your franchise business to a third party ("the potential purchaser") will be subject to the assignment of your franchise agreement to the potential purchaser or, alternatively the potential purchaser entering into a new franchise agreement with the franchisor.

The franchisor will generally deal with the assignment of your franchise agreement or alternatively the entry into a new franchise agreement with the franchisee.

 

Transfer of any Lease or Licence

If your franchise is a site based business then you may be required to assign the lease or licence to the new purchaser on the sale of your franchise.

Our article Navigating the Legal and Financial Aspects of Selling your Franchise Business in Australia, considers in more detail the transfer of any lease or licence.

 

After the Sale of the Franchise Business

In addition to setting out the process to sell your franchise business, your franchise agreement will also set out the process of what happens after the sale of the franchise business.

 

The Terms of your Franchise Agreement - Post Sale Provisions

After you sell the franchise business you will no longer have the right to trade under the franchisor's name or use the franchisor's intellectual property.

You will be obligated to return any operating manuals, client lists, signage and stationery.

You may also be obligated to transfer telephone numbers if those telephone numbers have been linked to the franchisor's name.

It is likely that you will still be subject to restrictions such as confidentiality and restraint of trade. It is important that you understand these restrictions.

 

Entry into a Surrender Deed or a Surrender Agreement

If the purchaser enters into a new franchise agreement with the franchisor, the franchisor may require you to enter into a surrender deed, or a surrender agreement, "surrendering" your rights under your franchise agreement.

A Surrender Deed/Agreement may contain a release of the franchisor from its obligations under the franchise agreement and from any claims that you may have against the franchisor. Whether you should sign such a release will depend on the circumstances, and you should seek legal advice before you enter into a Surrender Agreement/Surrender Deed.

Section 39 of the Franchising Code prohibits a franchisor from entering into a franchise agreement that requires a franchisee to sign a general release of the franchisor from liability towards the franchisee. 

 

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