What should I read before signing a franchise transfer agreement?

A franchise resale really has two negotiations layered on top of each other, and buyers who focus entirely on the purchase agreement with the seller often miss the second one that determines what they will actually be operating under.

The agreement you are actually signing, not the one you reviewed

Buyers frequently review the outgoing franchisee’s existing agreement during due diligence and assume they are stepping into it. In most systems, the franchisor issues its current-form agreement to the incoming owner, which can carry different royalty rates, marketing fund obligations, term length and territory language than the one reviewed. Read the actual document you will be asked to sign, not the one the seller handed over.

The transfer or assignment agreement

This separate document typically sets out the transfer fee, what the seller is being released from and what the buyer is assuming, any conditions the franchisor is imposing specifically on this transfer, and the timeline for training and any required renovation.

The personal guarantee

• Whether you personally, and not just your corporation, are on the hook for the location’s obligations to the franchisor
• Whether it covers only future obligations or anything the seller left unpaid
• Whether it survives if you later sell the location yourself
• Whether a spouse or business partner is also being asked to sign

Whatever disclosure the franchisor provides on a resale

What a franchisor discloses to a resale buyer is not automatic and depends on whether provincial franchise legislation applies at all to this transaction. Read whatever is provided closely, and ask directly what disclosure regime, if any, governs this specific transfer, rather than assuming silence means nothing further exists — silence is itself something worth getting in writing from the franchisor.