Franchise Advice
received for his or her business. The franchisor then has the option of either buying the business by matching the terms of the offer received by the franchisee from a third party or declining to exercise its option. From the franchisor’s point of view, this is an ethical approach because it secures for the franchisee the true market value of his or her business.
“At the time of buying a franchise, selling it is often the last thing on a prospective franchisee’s mind”
An alternative route is for the franchisor
to require its franchisee to notify the franchisor of his or her intention to sell his or her business. If the franchisor is not interested in buying, the franchisee is free to sell to a third party, subject of course to
certain conditions. If the franchisor wants to buy, the franchisor and the franchisee get together to agree a price that is acceptable to both parties. If agreement is reached (and, in most cases, it is) the deal is done and the business is sold. If they can’t agree on a price, the parties arrange for the business to be valued by an independent valuer. Once the value is determined, the franchisor must either exercise its option to buy or decline, in which case the franchisee is free to sell to a third party with the added advantage of having an independent valuation thereby enabling the franchisee to market the business more effectively. From the franchisee’s point of view, the disadvantage with this mechanism is that the independent valuation may be less than a figure the franchisee might have been able to obtain on the open market. The main advantage however, is that the franchisee could effectively sell his or her business by making one phone call without the hassle of having to deal with numerous (if he/she is lucky!) prospective buyers. Furthermore, if the franchisor buys the
business, the franchisee has the added advantage of not having to worry about whether or not the buyer will be approved by the franchisor (a condition found in most franchise agreements). At the time of buying a franchise, selling it is the last thing on a prospective franchisee’s mind, but they would be doing themselves a disservice if they didn’t read carefully the provisions relating to the sale of their business in the future. If the franchise agreement is drafted
carefully enough, these provisions should help the franchisee to realise his or her gain swiftly and with the minimum of difficulty, thereby confirming one of the principal advantages of franchising. n
MANZOOR ISHANI
Manzoor Ishani has specialised in franchising for more than 30 years and is a senior consultant solicitor with Sherrards, a commercial practice advising franchisors and franchisees in the UK and internationally.
December/January 2015 |
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