The Transfer Clause

One of the most important elements of the franchise agreement is the transferability clause. The transferability clause spell out the terms under which a party can sell or otherwise transfer their interest in the franchise to another party. It is essential that a potential and existing franchisees understand the particulars to their transfer clause in case they want to sell the company to go into another business, retire, or transfer their company to a family member.

Standard contract language spells out the various terms of the transferability clause such as the right of first refusal, notification requirements, expiration of the rights to purchase the company, consent requirements, and the conditions that must be met for transfer to take place.

Right Of First Refusal

The right of first refusal simply states that the party that wishes to sell the business gives the franchise notification in writing of their wishes to do so and that they are prepared to accept a bona fide offer. This clause usually gives the franchisor the right to buy back the franchise at a fair price if the franchisee wants to sell before an offer to sell is made to the public. This right usually expires in 90 business days if the franchisor has not exercised the right to repurchase the franchise and after which time the offer to sell can be made to the public.

Transfer the Business

The transfer section states whether of not the franchisee may freely transfer the ownership of the company to a third party in the event that the franchisee wished to sell or dies. In most cases there are provisions for a third party to inherit the franchise should the franchisee die, or the franchise could be purchased by setting up a corporation.

Breach of Contract

The transfer clause spells out the situations under which a franchisee will be considered in breach of the franchise agreement should he/she violate the terms of the transfer agreement which is usually selling the company without the franchisor’s written consent.

The above simply touches on the general aspects of the transfer clause in a franchise agreement and is not meant to represent any particular contract. The terms in each franchise agreement are similar, but different. You will need an experienced and knowledgeable franchise attorney to read and understand the particulars of an agreement regarding, including the transfer clause.