Selling a Franchise

Selling a franchise is largely the same as selling a business, but there is the added aspect of your relationship with the franchisor.

If you are an existing franchisee who intends to sell your business, your franchise agreement may require the purchaser of the business to gain the prior approval of the franchisor. In most cases, the purchaser will be subject to the same selection criteria for the system as the original franchisee.

Franchising Code of Conduct

Franchising in Australia is regulated by a mandatory Franchising Code of Conduct. The Code of Conduct sets out the rights and obligations of franchisors and franchisees and is legally binding.

The Australian Competition and Consumer Commission (ACCC) promote compliance with the Code and enforce it where necessary. The Code of Conduct is available for free from the ACCC or the Franchise Council of Australia (see External Links).

When it comes to selling a franchise, the Franchising Code of Conduct provides a number of guidelines including:

• a request for a franchisor’s consent to a transfer of a franchise must be in writing
• a franchisor cannot unreasonably withhold consent to a transfer
• a time limit of 42 days applies for a franchisor to decide on a requested transfer of a franchise.

Under the Franchising Code of Conduct, franchisees who sell their businesses as going concerns are required to provide a Disclosure Document to the purchaser, which, among other things, must include:

• contact details of the franchisor, franchisee, and background details of each director of the franchisee's business
• copy of the franchise agreement and lease agreements (if leases are to be transferred)
• profit and loss statements for the last two years
• summary of obligations the franchisee has with the franchisor
• pay details (including outstanding obligations) of each member of staff of the franchisee
• contact details of each ex-franchisee in the last three financial years.

Amendments to the Franchising Code of Conduct in July 2010 also require the franchisor to disclose whether the franchisee will have the right to sell the business at the end of the franchise agreement, and if so, whether the franchisor will have first right of refusal, and how market value will be determined.

All franchisees intending to sell their business should ensure they:

• check the most recent requirements on the ACCC website
• receive accounting and legal advice from qualified and experienced franchising accountants and lawyers.