While many franchisees plan for economic downturns,...
As a prospective Canadian franchisee, you have a lot of options, and this extends to more than just brands and industries. One way you can enter into the franchise world is by a franchise resale, which occurs when you buy an existing franchise location from a franchisee who wants to sell. Before you go this route, learn more about the terms of these types of sales so you have an idea of what will happen.
Some common terms
While there is no single universal standard for the terms across franchise resale agreements among all brands, there are some terms that are common enough to be held as standard. The franchisor will still want to approve you just as they would approve a franchisee coming into the system for an entirely new location. This means you will also still need to go through their training program for franchisees. In addition, the franchisee you are buying from has to be in compliance with his or her franchise agreement, including having all amounts due to the franchisor paid up until the date your sale closes.
As far as your franchise agreement goes, you may be allowed to take on the existing franchise agreement from the franchisee you're buying from, or you may have to sign one of your own. If you do have to sign one of your own, you can't assume the terms will be the same as on the current franchisee's agreement. The selling franchisee may have to release any claims or potential claims he or she has against the franchisor, and the existing location has to be updated to reflect the current brand standards; this can be the responsibility of either the selling or buying franchisee. In addition, the franchisor may have the right to approve some of the deal terms between you and the selling franchisee, and the selling franchisee may also have to pay a transfer fee to the franchisor.Naturally, these terms are largely designed to protect the franchisor and the system. A person buying a resale franchise is going to become a brand ambassador for the system, so the franchisor will want to confirm he or she can meet the requirements of the system for consistency and success. This means that while having a location that's already up and running is often faster than building one from stretch, you will still have to go through the typical franchisee process.