Canada: Resale Programs For Franchise Systems: A Different Perspective On Franchisees Exiting The System

The sale of franchised units often are associated with low sales, an underperforming operator, or a poor market- in essence, a failing store with an owner desperate to exit the system and a franchisor eager to bring in a new operator to save the unit and the brand reputation in the local market. Although distressed franchised units for sale exist in any franchise system, such units typically comprise only a portion of the total franchised units for sale at a given time. Other common reasons for sales of franchised units are due to franchisees seeking to exit the system to pursue other investment opportunities or prepare for retirement with no viable successor, situations where the franchisee is unwilling or unable to adapt to changes in the market or new initiatives implemented by the franchisor, a realization that the brand or owning a franchise does not meet the franchisee's expectations, or as an alternative to termination following a franchisee's breach and failure to cure such breach. Additionally, as franchising increasingly becomes attractive to investors and private equity groups as an avenue to diversify their portfolios, the likelihood that franchises will be purchased, developed, and sold prior to expiration of the franchise term also increases. The motivation for selling an operating unit drives the strategy for marketing the unit to potential buyers; however, owners-whether successful or unsuccessful operators-often lack the skills and resources to market, negotiate, and finalize the sale of a business. Owners of underperforming units anxious to sell may entertain offers from any buyer willing to purchase the unit, thus positioning the franchisor at the crossroads of a closed unit and a buyer that does not meet the criteria for new franchisees. For owners of successfully operating units, the process of selling a business may be lengthy, time-consuming, and may present challenges for owners inexperienced at valuing a business, potentially resulting in a successful unit becoming an underperforming unit due to owner fatigue with the sales process. Any of the above scenarios has the potential to lead to a transfer to a less-than-ideal candidate and subsequent churn of the unit, with the related cost to the franchisor both in transitioning to another new owner and in its overall brand reputation.1

In light of the myriad of reasons underlying the transfer of a franchise and the potential consequences of an unsuccessful transfer, franchisors may consider the benefits of a structured process whereby franchisees may exit the system by way of a formal franchise resale program. Franchise resale programs are gaining popularity in many franchise systems, and as described in detail below, these franchise resale programs can take many forms, including franchisoradministered programs or the use of specialized consultants as franchisorapproved or optional suppliers. This article explores the evolving trend in franchisor-established franchise resale programs and examines the business and legal considerations under United States and Canadian law related to such programs and the sale of franchised units. The authors also seek to promote consideration of business factors that underlie development of a strong franchise resale program tailored to the franchise system instead of utilizing business brokers that take a one-size-fits-all approach to selling franchised units.

I. Overview of Franchise Resale Programs

Most franchise agreements include conditions that must be satisfied before a franchisor will consent to a franchisee transferring its rights in the franchise agreement and franchised business to a new owner. Such conditions may include securing a buyer that satisfies certain criteria established by the franchisor, such as financial criteria and creditworthiness, training, upgrades to the unit consistent with the franchisor's then-current standards, and payment of a transfer fee, all of which are integral to a transfer to ensure uninterrupted delivery of products and services to the unit's customers. However, satisfaction of such conditions is not triggered until the franchisee requests the franchisor's consent to transfer and presents a prospective buyer for the franchisor's consideration. An established franchise resale program can provide support to franchisees seeking to exit the system at the initial stages of the sales process, beginning with selection of a buyer from a pool of qualified candidates.

To that end, a critical component of a franchise resale program is a pipeline of qualified buyers. This pipeline may be comprised of prospective franchisees that meet the franchisor's operational criteria to become a franchisee but lack the capital required to meet the initial investment for development of a new unit. The pipeline may also include entrepreneurs interested in expanding their portfolios and existing franchisees seeking to capitalize on the skills they have developed to turnaround an underperforming unit. A healthy pipeline of prospective franchisees for resale units provides immediate options to owners interested in exiting the system, regardless of whether the unit is struggling or successfully operating. But, unlike the selling franchisee or third party business brokers retained by the franchisee outside of an established franchise resale program, the franchisor or its designated administrator of the franchise resale program has access to such a pipeline.

A franchise resale program also provides access to the franchisor's resources for marketing the brand to prospective franchisees. The skills necessary to successfully operate a franchise and to successfully market for sale a franchised business are distinct. A franchisor is in the business of selling franchises, while its franchisees are in the business of operating the type of business franchised by the franchisor, thereby making the franchisor better suited to market for sale operating units. Providing franchisees access to the benefits of franchisor's strategic approach to marketing its franchises through an established franchise resale program ensures that the message conveyed to prospective buyers seeking to enter the system is consistent with the franchisor's message to prospective franchisees and targets the type of buyer that historically has demonstrated success in operating units within the franchise system.

For clarification, the franchise resale programs described in this article are distinct from simply listing units for sale with a broker. A franchise resale program is customized for the brand to maximize the return on investment of the services provided through the franchise resale program, including identifying the characteristics of franchisees that have been successful in operating in the franchise systems and targeting buyers that demonstrate similar characteristics. As noted above, franchisees are increasingly more often sophisticated business owners interested in diversifying their investment portfolios and less the once-common operator seeking to be his own boss. An established franchise resale program is an attractive value-add to a franchisee that desires the flexibility to sell its operating units if a better investment opportunity presents itself.

In addition, a franchise resale program provides a clear pathway for the buyer post-closing with respect to advertising the unit, training personnel, and growing (or in some cases rehabilitating) the brand in the market that may vary depending upon the type of unit acquired (i.e., underperforming unit versus a successful unit). This may include a different tier of advertising, personnel training services, and fee deferrals provided to the buyer of a distressed resale unit on an interim basis while such buyer invests in rebuilding the market compared to the buyer acquiring a package of multiple successful units and who is a seasoned operator, thereby requiring minimal training and advertising support during the transition. While many franchisors likely provide varying forms of resale services to franchisees seeking to sell their units, it often is not part of an established process that is applied consistently to all transfers and instead is focused primarily on distressed franchisees. Maintaining an established franchise resale program with defined pre- and postclosing paths not only improves consistency across transfers and promotes stability across operating units but also may be attractive to prospective franchisees that the franchise system has a vehicle by which the franchisee may exit the system when desired.


1 While churning units is damaging in any franchise system, it can cause significant damage in franchise systems where services form the basis of the system (e.g., tutoring services provided by an owner-operator to students who are required to adjust to multiple instructor changes as the franchise transfers hands again and again).

To view the full article, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Alexander Holburn Beaudin + Lang LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions