What if the franchisor delays approval and my buyer walks away?

A franchisor’s delay can end a sale you thought was done. If your buyer walks, three documents matter: the purchase agreement with the buyer, the franchise agreement with the franchisor, and the franchisor’s own correspondence. Collect all three before deciding what to do next. Our page on what happens if the buyer walks away before closing covers the general position.

What the purchase agreement says

Look for the clause making closing conditional on franchisor approval, and check who could rely on it. Check the outside date, whether either side could extend it, and what the agreement says about the deposit if a condition is not met by then. The answer may turn on whether the buyer ended the agreement as the contract allowed, or simply stopped performing. A lawyer can tell you which, and what follows.

What the franchisor owed you

Read the transfer clause for any time the franchisor has to respond and what it may require before approving. In Ontario, the Arthur Wishart Act says every franchise agreement imposes on each party a duty of fair dealing in its performance and enforcement, including the duty to act in good faith and in accordance with reasonable commercial standards. A party that breaches it is open to an action for damages. Whether a delay breaches that duty depends on the facts. The Act’s disclosure exemptions also refer to a franchisor’s right, exercisable on reasonable grounds, to approve or disapprove a grant.

Steps while the clock is running

• Send the franchisor a complete transfer package and keep proof of the date
• Ask in writing for a decision date and for any outstanding requirements
• Ask the buyer in writing for an extension before the outside date
• Keep every message with the franchisor and the buyer

Other provinces regulate franchising under their own statutes, and the Canadian Franchise Association notes that they differ in important ways, so confirm the rules where your franchise operates.