Buying and selling a franchise

In addition to the usual complex issues that arise in relation to the sale and purchase of a business, transferring a franchised business also involves transferring the franchise agreement, and complying with the other requirements of the Franchising Code of Conduct referred to below.

There are two ways to transfer a franchise agreement:

• • direct transfer, with the consent of the franchisor; or
• • novation, involving the vendor terminating the existing agreement and the purchaser entering into a new one.

Clause 9 of the Code requires the franchisor to give disclosure to the purchaser of the franchised business, in the same way as if that purchaser were taking a fresh franchise from the franchisor. However, cl 26(2) of the Code provides that there are no cooling off rights under the Code for the transfer or novation of an existing franchise agreement.

The sale of business often involves transfer of the lease of the premises where the business is conducted. For franchised businesses, the arrangement is often that the franchisor leases the premises from the building owner, and subleases or licenses them to the franchisee. Accordingly, sale of a franchised business will often include transfer of both the franchise agreement and the lease from the franchisor.

See Buying and selling a franchise.