Franchise Advice
How free are you to sell your franchised business?
Manzoor Ishani discusses franchise resales M
ost franchise agreements contain a provision to the effect that, if the franchisee wants to sell its business, the consent
of the franchisor is required. They will also include, however, the caveat that the franchisor will not withhold that consent unreasonably.
What if the franchisor does not like the buyer (the incoming franchisee) or feels that the price they are willing to pay for the business is way above its true value? If the latter, the buyer may have a very difficult time of making a success of the business – it may be that the margins and the turnover
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Businessfranchise.com | April 2014
are just not there to support a purchase price of that nature. The buyer may have more money than sense and a franchisor may feel very strongly about granting consent to a sale in circumstances that it believes will lead to financial failure. In any event, the franchisor is going to have to show that they have reasonable grounds for refusing. Certainly, the point about the business being over-priced will be easier to prove than the point about not liking the buyer. The test is going to be an objective one and, unless the franchisor can reach some accommodation with its franchisee, a judge will have to decide – something neither of them will want. Most franchisees buy a franchise with
a dream in mind. For some, that dream is that, after a number of years of hard work and dedication, they will have built up a business, which they will eventually be able to sell. Surveys have shown that around 13 per cent of franchisees buy a franchise to make their investment grow. Franchisors encourage prospective franchisees in this dream. In commerce as in life, however, things are seldom straightforward. Franchisees who buy on a promise from the franchisor that they will be able to sell, often forget that any such promise was coupled with certain conditions. Most franchise agreements are very clear about these conditions and, at the time of buying a franchise, franchisees
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