Buying a Franchise

Franchise acquisitions involve a layer of legal complexity that standard business purchases don't: the franchisor. Every resale requires franchisor approval, and that approval comes with conditions. The Franchise Disclosure Document, territory restrictions, required capital reserves, and transfer fees all need careful legal review before you sign anything.

Typical deal: $100K - $5M+ Structure: Franchise Agreement + Asset Purchase

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The Franchise Acquisition Landscape

The U.S. franchise industry spans over 800,000 establishments across hundreds of concepts, from fast food to fitness to home services. Buying an existing franchise (resale) differs significantly from buying a new franchise. Resales come with established revenue, trained employees, and existing customer bases, but also carry the franchisor's right to impose new terms as a condition of approving the transfer.

Key Legal Considerations

Franchise acquisitions involve industry-specific legal issues that general business attorneys often miss:

Franchise Disclosure Document (FDD) review - 23 required disclosure items

Franchisor transfer approval and any conditions imposed on the new buyer

Transfer fees (often 25-50% of the initial franchise fee)

New franchise agreement terms vs. the seller's existing agreement

Territory exclusivity rights and any recent changes by the franchisor

Required capital reserves, net worth requirements, and training obligations

Non-compete clauses that survive if the deal falls through

Due Diligence Checklist: Franchise Acquisition

Before closing on a franchise purchase, verify each of these items:

Review the current FDD and compare against the seller's original agreement
Verify franchise is in good standing with franchisor (no defaults or violations)
Review Item 19 financial performance representations in the FDD
Confirm territory rights and whether the franchisor has added competing locations
Review all required equipment upgrades or remodeling mandated by franchisor
Assess lease terms and whether the franchisor holds the master lease
Verify franchise royalty and advertising fund payment history

Common Deal Killers

These issues kill more franchise acquisitions than bad economics:

Franchisor refuses to approve the transfer or imposes unacceptable conditions

Franchisor requires execution of a new (less favorable) franchise agreement

Buyer doesn't meet franchisor's financial or operational requirements

Why Legal Counsel Matters

The franchisor has contractual veto power over any resale. They can require you to sign a completely new franchise agreement, impose mandatory renovations, increase royalty rates, or simply refuse the transfer. Your attorney needs to engage with the franchisor early and negotiate terms before you invest in due diligence.

Our Process: Franchise Acquisitions

A structured approach to franchise acquisition counsel

FDD Review and LOI

We review the Franchise Disclosure Document, analyze the franchise agreement, and help structure the letter of intent with appropriate franchise-specific contingencies.

Franchisor Engagement

We initiate the transfer approval process with the franchisor, identify any conditions or requirements, and negotiate new agreement terms where possible.

Due Diligence

Financial verification, franchise compliance history review, territory analysis, lease review, and assessment of any required renovations or equipment upgrades.

Purchase Agreement and Franchise Agreement

We negotiate the asset purchase agreement with the seller while simultaneously managing the new franchise agreement execution with the franchisor.

Closing

Coordinated closing with seller, franchisor, and lender (if applicable). Transfer of operations, training schedule, and assumption of franchise obligations.

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Frequently Asked Questions

Common questions about buying a franchise

Does the franchisor have to approve the sale of a franchise?

Yes. Almost all franchise agreements include a transfer provision that requires the franchisor's consent before ownership changes. The franchisor typically has the right to approve the buyer, impose conditions on the transfer, and in many cases exercise a right of first refusal to buy the franchise back.

What is the Franchise Disclosure Document and why does it matter?

The FDD is a legal document that franchisors must provide to prospective buyers at least 14 days before signing. It contains 23 items covering the franchise system, fees, obligations, financial performance, and litigation history. Reviewing the FDD with an attorney is essential before committing to any franchise purchase.

Can the franchisor change my agreement terms during a resale?

Yes, and they frequently do. Many franchisors require the new buyer to sign the current version of the franchise agreement, which may include higher royalties, different territory terms, or additional obligations not present in the seller's original agreement. This is one of the most important items to negotiate.

What transfer fees should I expect when buying a franchise?

Transfer fees typically range from $5,000 to $50,000 or more, depending on the franchise system. Some franchisors charge a flat fee while others charge a percentage of the initial franchise fee (commonly 25-50%). The transfer fee is separate from the purchase price you pay the seller.

How long does it take to buy an existing franchise?

Franchise resales typically take 60 to 120 days from signed LOI to closing. The timeline depends heavily on the franchisor's approval process, which can take 30 to 60 days alone. SBA financing adds additional time for lender requirements.

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