Many franchise agreements include a provision stating that the franchisor reserves the right to transfer its franchise organization to a third party.
The question that then arises for many franchisees is whether this is possible without further ado. After all, they had emphatically concluded a franchise agreement with the relevant franchisor because of, among other things, the knowledge that the relevant franchisor has of the industry and the know-how present in the franchise organization. Although the latter is of course very understandable, a franchisor is allowed to include such a provision in the franchise agreement and then to implement it. It therefore regularly happens in practice that a franchisor wants to dispose of the entire organization – for very different reasons.
However, it is not the case that the franchisor is free to sell his business to any party. In the case of a sale of a franchise organization, the interests of the franchisees must prevail, which means that in the event of a transfer of the organization it must be ensured that the franchisees can continue their business in the same or in a very similar manner. on the terms agreed with the transferring franchisor. This applies in particular, of course, to the financial conditions on which the cooperation between the franchisor on the one hand and franchisees on the other is based. It cannot be the case that a transfer to a successive franchisor will result in the franchisees suffering a serious financial loss. The franchisee may in any case assume that during the term of the agreement, as he has concluded with the transferring franchisor, he can continue his business under the same conditions, irrespective of whether the franchise organization is transferred.
This is all the more pressing if the franchisee has made significant investments or has entered into financing obligations with lenders when entering into the franchise agreement – as will be the case with most franchisees. It goes without saying that entering into such obligations is closely related to the conditions under which the franchise agreement has been entered into. The successive franchisor must also ensure that the market position of the company it takes over does not deteriorate. This is, of course, partly dependent on the question of whether a successive franchisor takes over the organization with the associated name and the like or whether it is placed under an existing franchise organization. This will be discussed in more detail in one of the following articles.
Ludwig & Van Dam franchise attorneys, franchise legal advice