Can a franchisor demand a share of my sale price?
A franchisor’s claim on your sale proceeds has to rest on something: a transfer fee or charge in the agreement, money you already owe it, or a right such as first refusal. Ask which one it is and where it is written. Under the Acts cited here, a required fee set out in the agreement, or not above reasonable processing costs, does not by itself take a resale outside the disclosure exemption.
A demand for “a share of the price” can mean several different things, and they carry different answers. Before you negotiate it, find out exactly what is being claimed and on what basis. The label the franchisor uses matters less than the clause it can point to.
Ask which charge it is
The claim might be a transfer fee, unpaid royalties or marketing contributions, a cost to bring the location up to brand standards, or a fee for a service the franchisor says it provided in the sale. A right of first refusal is different again, because it lets the franchisor match an offer rather than take a share of it. Ask for the clause and the arithmetic. Our answer on what a franchise transfer fee is covers the ordinary fee.
What the Acts say about fees
Ontario, British Columbia and Alberta each say a resale is not effected by or through the franchisor merely because a fee must be paid in an amount set out in the franchise agreement, or in an amount that does not exceed the reasonable actual costs of processing the grant. Alberta’s wording refers to a specific amount established in the agreement and to the costs of processing the transfer. This is part of the disclosure exemption. It is not a general cap, and it does not say what any agreement may charge. It does tell you the first question: is the amount in the agreement?
Where fair dealing fits
Ontario’s and British Columbia’s Acts say every franchise agreement imposes a duty of fair dealing in its performance and enforcement, including good faith and reasonable commercial standards. If a demand has no clear basis in the agreement, that duty may be relevant. Whether it applies is a legal question for your lawyer, not something to assume in negotiation.
Get the number before you commit
Ask the franchisor for a written statement of everything it says is owed or payable on the sale, and make closing conditional on it. Settle arrears before the price is fixed. Our answer on what to check in a franchise’s outstanding defaults lists what to look for.
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of OntarioGovernmentArthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3
- 02Government of British ColumbiaGovernmentFranchises Act, S.B.C. 2015, c. 35
- 03Government of AlbertaGovernmentFranchises Act, R.S.A. 2000, c. F-23
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