Changing hands

It is true to say that there comes a time when even the most successful franchisee needs to move on. A proactive franchisor will identify franchisees with a view to raising the question of selling as a way of 'refreshing' its network.

It is important to maintain enthusiasm and commitment from franchisees and an injection of fresh blood into a network cannot be underestimated. A franchisor who takes a decision to assist in the resale process is ensuring that suitable candidates are not only selected, but that the transition of the franchise business from old to new is managed in an efficient manner.

A trend has developed over recent years for franchisors to actively manage the resale process, even to the extent of being a contracting party to the Resale Agreement itself. The franchisor is then in a position to approve the statements and warranties made by the outgoing franchisee regarding the business. It is in the franchisor's interests to ensure that the new franchisee is not given false impressions or unrealistic information regarding the business being acquired.

The franchisor is also able to ensure that the business is not sold without a new franchise agreement being entered into by the incoming franchisee and that all monies due to the franchisor are collected on completion of the sale of the business.

A 'pro forma' sale agreement can help to reduce the cost burden on the outgoing and incoming franchisees. This is particularly relevant for businesses, which are changing hands for relatively modest sums.

For the departing franchisee, the sale of his business can be an emotionally fraught time. There are many different reasons why the franchisee decides to sell, ranging from a wish to enjoy the proceeds of many years of hard work, or as a result of a change in personal circumstances such as ill health or divorce.

If you are a franchisee considering sale of your business, it is worthwhile giving some thought to the information the purchaser and his lawyer will require. For example:

• If you are in the middle of a rent review, it is sensible to conclude those negotiations because uncertainty regarding the rent can be off-putting for prospective purchasers and may have an adverse impact on your negotiating position

• If your business has employees, you will be asked to provide copies of all current contracts of employment and to provide details of all terms and conditions, including remuneration, bonuses, etc

• You will have to provide details of any disputes with suppliers or customers

• You will have to provide copies of any leasing agreements that relate to equipment required to operate the business

• You will have to provide an up-to-date schedule of fixtures and fittings to be sold.

A little planning at the outset will save time and ensure that the matter moves smoothly to a successful completion.

If the franchise the purchaser has selected uses a standard Resale Agreement, this will assist all of the lawyers involved and help keep legal costs to a minimum. One of the principal aims of the Resale Agreement is to ensure that neither the outgoing nor incoming franchisee face any nasty surprises after completion.

Firstly, the outgoing franchisee should be well aware of his responsibilities in terms of non-solicitation of customers and employees after completion. Secondly, the new franchisee should have certainty about the assets he has purchased, and equally the liabilities he has accepted in buying a business as a going concern.

Lastly, the franchisor should have ensured that the franchise changes hands smoothly and that all debts and obligations are dealt with satisfactorily. Once completion has taken place, the franchise network will have the benefit of a new franchisee full of enthusiasm to operate the franchise with 100 per cent commitment.

Jane Masih is a partner at Owen White Solicitors. You can contact her on: Tel: 01753-876800 Email: jane.masih@owenwhite.com