The basic principles of selling a business also apply to franchisees seeking to sell their franchise. The exception is that a franchise sale has the added layer of assigning the franchise agreement itself (or obtaining the consent to the change of control of a franchisee corporation) and all the supporting documents that are required for this to take place. The extra steps can add to the time it takes to find a suitable buyer, finalize a sale agreement and complete the transaction.

If you are interested in selling your franchise, one of the first things to do is review your franchise agreement to determine the length of term remaining. If the contract is close to expiring you may wish to renew the agreement before putting your franchise up for sale in order to increase its appeal to a buyer. However, if a franchisee believes that a prospective buyer may wish to "re-brand" the business then the converse is also true. The closer to the end of the term you can sell (without renewing) may make the business opportunity more attractive to a buyer.

You should also review the agreement to understand the requirements for a transfer of ownership to a new franchisee. Almost all franchisors will want to approve the new franchisee. This usually involves an application process, interviews, personality profiles and whatever other procedures your franchisor normally includes to approve a franchisee. The franchisor will also have to comply with their disclosure obligations as outlined in the Arthur Wishart Franchise Disclosure Act, the legislation regulating franchising in Ontario. Lastly, there is usually a transfer fee that is charged on the sale of a franchise that is payable to the franchisor, and this fee is typically calculated as a percentage of the initial franchise fee.

If you have a lease, you should review this as well. Generally, the lease expiry date should marry up to the franchise expiration. Otherwise, you, or the new owner will be in a poor bargaining position for the renewal of either agreement.

As with any sale, your legal advisor can take you through the entire sale process beginning with structuring your business to optimize tax treatment, preparing the letter of intent, organizing due diligence, assignment of the
lease, and working with the franchisor with respect to the transfer of the franchise agreement.