Transfer of Ownership

Transferring ownership of a franchise may also be more difficult than you might think. There may be provisions and restrictions in the franchise agreement that prohibit it, or at least restrict it. It is a difficult situation because the franchisee owns the assets of the business, but the franchisor owns the brand and trademark.

Ownership transfer elements of franchise agreements often include these types of statements:

• The franchisor gets the right to approve transfer.
• The franchisee must execute a release (unless limited by state law).
• The franchisor gets final approval of the prospective franchisee's qualifications.
• There are limitations on transfers to competitors (usually upheld by courts).
• The franchisor gets the right of first refusal under the same terms as the prospective franchisee.
• The franchisee must have no outstanding fees owed to the franchisor.

Three of the 16 states with franchise relationship laws (Iowa, Michigan, and Wisconsin) also have provisions that directly relate to franchise transfers.