Can I sell my franchise territory separately from the location?

A franchisee who holds a protected area may wonder whether it can be sold on its own, separate from the open location. The answer starts with how your agreement grants territory and ends with the franchisor’s consent.

Territory is defined by the agreement

Alberta’s Franchises Regulation sets out what a disclosure document must say about territory: any exclusive territory granted to the franchisee, the franchisor’s policy, if any, on how close to an existing franchisee outlet it may place other outlets, and its policy, if any, on whether the territory depends on a sales volume or other contingency and when it may be altered. Those items point to two questions for your own agreement: whether the territory is exclusive, and whether it is conditional.

Is it a separate right at all?

Check whether the grant is tied to the premises, or to the franchisee as a whole, or sits in a separate territory or area development agreement. A territory written into the location’s agreement may not be transferable apart from it. A separately documented right may be; check what that document says about who must consent.

A partial sale changes the disclosure analysis

Ontario’s Arthur Wishart Act (s.5(7)(a)) and Alberta’s Franchises Act (s.5(1)(a)) exempt a grant by a franchisee from disclosure if several conditions are all met. One of them, for a master franchise, is that the entire franchise is granted. A sale of part of a master franchise would not meet that condition. Others are that the franchisee is not the franchisor, its associate or a director, officer or employee of either, and that the sale is for the franchisee’s own account and is not effected by or through the franchisor. Other exemptions in the same sections may apply, so a lawyer should test the proposed sale against each.

Practical next steps

Ask the franchisor in writing whether it will recognise a separate transfer of the territory, and on what terms. Ask a buyer to confirm what it intends to build there. Consider also how selling the territory affects the value and protections of the location you keep.