Can a purchase agreement be conditional on franchisor consent?

A purchase agreement for a franchise resale can make closing depend on the franchisor’s consent. Check the franchise agreement for any right the franchisor has to approve a buyer, and build the condition around those terms. A condition on consent is one kind of closing condition; what a conditional offer is explains the general idea. The questions below are specific to a franchisor.

What the condition should spell out

• Whose consent is needed. Check whether the landlord must also approve a lease assignment, and treat that as its own condition.
• The form of consent. Require it in writing, and say whether consent given on terms counts.
• Who applies, who supplies the buyer’s documents, and the deadline for the franchisor’s answer.
• Who may waive the condition, and whether the buyer or the seller can end the deal if the deadline passes.
• What happens to the deposit if consent is refused.

How the franchise laws fit

Under Ontario’s Arthur Wishart Act, a franchisee’s resale can be exempt from the disclosure rules if, among other conditions, the grant is not effected by or through the franchisor (s. 5(7)(a)). The Act says a grant is not effected by or through the franchisor merely because the franchisor has a right, exercisable on reasonable grounds, to approve or disapprove the grant, or because a transfer fee must be paid in an amount set out in the franchise agreement or not exceeding the reasonable actual costs incurred by the franchisor to process the grant (s. 5(8)). The exemption has other conditions, so do not assume it applies. The Act also imposes a duty of fair dealing on each party to a franchise agreement in its performance and enforcement (s. 3), as does Alberta’s Franchises Act (s. 7). That duty may matter if consent is slow or refused.

If the franchisor says no

A refusal means the condition has not been met, and the purchase agreement should already say what follows. Ask for the franchisor’s reasons in writing and compare them with the grounds in the franchise agreement. See what happens if the franchisor refuses to approve your buyer.