Franchise Resale Attorney
Selling a franchise involves more moving parts than selling a conventional business, and the process is governed by rules most sellers don't fully understand until they're in the middle of it.
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You built something. The business runs, the numbers work, and now you're ready to sell. The challenge with a franchise resale is that you don't control all the terms of the transaction. The franchisor does, to a significant degree. Transfer fees, approval rights, training requirements, and the franchisor's right of first refusal all can sit between you and a clean exit, and navigating that process without the right legal support costs sellers both time and money.
EntrePartner represents franchisees who are selling their units, franchisors who are managing transfers within their system, and buyers who are acquiring existing franchise locations. We understand the mechanics of franchise transfers from every angle, which means we can move the process forward efficiently and handle the complications that tend to slow it down.
A franchise resale is also a business sale, and it carries all the legal complexity that comes with any business acquisition on top of the franchise-specific requirements. The purchase agreement, the representations and warranties, the allocation of assets and liabilities, and the transition arrangements all need to be handled correctly alongside the franchisor approval process.
What Franchise Resale Legal Work Covers
Transfer Agreement and Franchisor Approval
Every franchise agreement contains provisions that govern what happens when a franchisee wants to sell. These provisions typically require the franchisor's consent to the transfer, give the franchisor a right of first refusal to purchase the unit at the agreed sale price, require the seller to be current on all obligations, and mandate that the buyer meet the franchisor's franchisee qualifications and complete a training program. We manage the franchisor approval process, prepare the required documentation, and keep the transaction moving through the approval timeline without unnecessary delays.
Purchase Agreement Drafting and Negotiation
The purchase agreement between buyer and seller governs the financial terms of the transaction, the allocation of assets and liabilities, the representations each party makes, the distribution of risk between the buyer and seller, and the post-closing obligations on both sides. In a franchise context, the purchase agreement also needs to account for the franchise agreement, any lease assignment, and the franchisor's approval conditions. We draft and negotiate purchase agreements that reflect the deal the parties actually agreed to and that hold up once the transfer is complete.
Lease Assignment
Many franchise locations operate out of leased premises, and the lease assignment is often one of the more complicated pieces of a franchise transfer. The landlord's consent is typically required, and the terms of the assignment, including whether the seller retains any liability under the original lease, vary depending on how the lease is structured. We work through the lease assignment process alongside the purchase agreement and franchisor approval so all three tracks close on the same timeline.
Exit Planning for Franchisees
For franchisees who are thinking about selling but haven't started the process, early planning makes a significant difference in the outcome. Franchise agreements contain renewal deadlines and transfer timing requirements that can affect the value of a unit if they're not managed correctly. Personal guarantee obligations, outstanding royalty balances, and the condition of equipment and leasehold improvements all affect what a buyer will pay and how cleanly the transfer goes. We work with franchisees who are planning an exit to get ahead of these issues before they become obstacles.
Franchisor Transfer Program Development
Franchisors with active systems experience unit transfers regularly, and having a consistent, well-documented transfer process protects the franchisor and makes the system more attractive to both buyers and sellers. We help franchisors develop transfer protocols that standardize the approval process, protect the brand, and comply with disclosure requirements around resale activity and franchisee turnover.
Multi-Unit and Portfolio Sales
Selling multiple franchise units in a single transaction adds complexity on every dimension, the franchisor approval process, the purchase agreement structure, the lease assignments, and the allocation of purchase price across units. We represent buyers and sellers in multi-unit and portfolio transactions and manage the additional complexity that comes with deals of that size.
What Sellers Miss Before They Start the Process
Most franchisees who are thinking about selling focus on the purchase price. The provisions in the franchise agreement that govern the transfer process deserve equal attention, because they determine how much of that purchase price you actually walk away with and how long it takes to get there.
Transfer fees paid to the franchisor can be substantial, and they're typically non-negotiable. The right of first refusal gives the franchisor the option to step in and buy the unit at your agreed sale price, which affects how you negotiate with prospective buyers and how you structure the deal. The requirement that the buyer meet current franchisee qualifications and sign the franchisor's current form of franchise agreement, which may be materially different from yours, can affect both the pool of buyers and the price they're willing to pay.
Post-sale obligations also come up more often than sellers expect. Most franchise agreements contain non-compete provisions that apply after the sale is complete. Understanding what you're agreeing to on the back end of the transaction is as important as getting the purchase price right on the front end.
Franchise Resale Services
What It Looks Like to Work With Us on a Franchise Resale
Franchise resales involve three parties at minimum: the seller, the buyer, and the franchisor. Each one has its own timeline, its own interests, and its own approval requirements, and keeping all three tracks moving in the same direction is most of the work.
We get involved early when we can, particularly for sellers, because the pre-sale preparation often has more impact on the outcome than the negotiation itself. Knowing what your franchise agreement actually says about transfers, getting ahead of any outstanding obligations that could hold up approval, and understanding what buyers in your system typically look for all make the process go faster and cleaner.
For buyers, we approach a franchise resale the same way we approach any business acquisition, with the assumption that what you see in the financials and what you inherit at closing are not necessarily the same thing. The franchise agreement and the relationship with the franchisor add a layer of due diligence that a general business purchase doesn't have, and we make sure that layer gets the attention it deserves.
For franchisors, we help establish an efficient transfer process that protects the franchisor and makes the system more attractive to both buyers and sellers. We also help resolve those sticky situations that are inevitable in franchise transfers.
Frequently Asked Questions
How is selling a franchise different from selling a regular business?
Selling a franchise requires the franchisor's consent, compliance with the transfer provisions in the franchise agreement, and in most cases the execution of a new franchise agreement by the buyer. The franchisor may also have a right of first refusal to purchase the unit at the agreed sale price, and the buyer will need to meet the franchisor's current qualification standards and complete training. These requirements don't exist in a conventional business sale, and they affect the timeline, the buyer pool, and in some cases the price.
Can I sell my franchise without the franchisor's approval?
Almost certainly not. Virtually every franchise agreement requires franchisor consent to any transfer of the franchised business, and transferring without that consent is typically a default under the agreement. Beyond the contractual issue, the buyer would be taking on a business without a valid franchise agreement in place, which creates obvious problems. The franchisor approval process is a required part of every franchise resale, and managing it correctly is a significant part of what a franchise resale attorney handles.
What is a right of first refusal and how does it affect my sale?
A right of first refusal gives the franchisor the option to purchase your franchise unit at the same price and on the same terms that you've negotiated with a third-party buyer. If the franchisor exercises this right, the deal you negotiated with your buyer falls apart and the franchisor steps in as the purchaser. Most franchisors don't exercise the right of first refusal frequently, but its existence affects how buyers approach the negotiation, since they know the deal could be taken away from them after they've invested time in due diligence.
What should I do to prepare my franchise for sale?
Start by reviewing your franchise agreement to understand the transfer requirements, timing restrictions, and any outstanding obligations that could affect the approval process. Make sure royalties, fees, and other amounts owed to the franchisor are current. Review the condition of your equipment, leasehold improvements, and any technology systems the buyer will be taking over. Gather three years of financial statements and tax returns. And if your franchise agreement has a renewal deadline coming up, understand how that affects the timeline and the value of what you're selling before you go to market.
Do buyers of existing franchise units need to sign a new franchise agreement?
In most cases, yes. Franchisors typically require buyers to sign the franchisor's current form of franchise agreement rather than assuming the seller's existing agreement, which may be years old and contain different terms. This means buyers could be taking on different fee structures, territory terms, or operational requirements than what the seller agreed to, and it's one of the reasons buyers in a franchise resale need their own legal review of the current franchise agreement before they commit to the purchase price.
Ready to Sell, Buy, or Plan Your Exit?
Whether you're preparing to sell, evaluating an acquisition, or helping your franchisees transfer their businesses, the process goes better with the right legal support from the start.Contact us today to talk through where you are and what you need to get the deal done.
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