Can A Company Secretary Sign A Board Resolution?

Franchises offer the chance to operate a business with the structure, support, and guidance of an overarching company, the franchisor. Both the franchisee and franchisor enter into a Franchise Agreement, and franchises are well regulated in New Zealand, although there is no specific Franchise Code of Conduct as in Australia.

However, the franchise model doesn’t suit everyone. The success of your franchise relies heavily on both parties operating their side of the business in good faith, with mutual respect and cooperation. This can prove challenging.

The franchisor has the entire business in mind and may make decisions that suit some franchisees and not others. The financial rewards may not meet the franchisee’s expectations, and it can be many years before the initial buy-in fees have been recovered. This can lead to disenchantment with the arrangement.

It may be personal circumstances such as bereavement or divorce that force a franchisee to sell. Sometimes it just doesn’t work out, and one of the parties elects to extricate themselves from the franchise.

One way to do that is to sell or transfer your franchise.

What Does The Law Say?

In New Zealand, the law around franchise agreements is governed by general contract law and fair trading principles. The Franchise Association of New Zealand (FANZ) provides a self-regulatory framework, including a Code of Practice and a Code of Ethics, which its members are expected to follow.

The Franchise Association of New Zealand Code of Practice

The FANZ Code of Practice encourages transparency and full disclosure, requiring franchisors to provide a disclosure document to prospective franchisees. It also outlines the process for transferring a franchise, which includes obtaining the franchisor’s consent.

As the franchisee, you must make the request in writing to the franchisor to consent to the transfer of your franchise. You need to provide all the information that the franchisor would reasonably require to make an informed decision.

The franchisor must respond within a reasonable time frame, and any withholding of consent must be based on reasonable grounds. The FANZ Code does not specify exact time frames, unlike the Australian Code, so it’s important to refer to your specific Franchise Agreement for details.

The key is that consent can only be withheld for reasonable reasons.

Refer To Your Franchise Agreement

Broad guidelines are set out in the FANZ Code, but your Franchise Agreement will likely dictate the details around transferring your franchise. It’s important that you check any assignment or transfer fees before signing your agreement.

It’s something you might try to negotiate down while they’re excited to have you on board! We can help with that.

There is often a clause in franchise agreements that gives franchisors first refusal to buy a franchise back. If they choose not to buy it, they may well have a significant say in who you can sell to.

Don’t forget that from the franchisor’s perspective, it’s exactly the same as when you bought in: the franchisor is entrusting any franchisee to grow their company, to safeguard their reputation, and to bring in financial rewards. They need to be sure that your potential purchaser can do that too.

This is why there’s a cost to transferring a franchise. It takes time and money for the franchisor to assess the feasibility of the transfer and suitability of the potential franchisee that you hope to sell to.

What Should I Know About Transfer Fees?

Transfer fees should be outlined in the Franchise Agreement. They are intended to cover a range of costs associated with the process of transferring a franchise, that the franchisor passes on to you.

Whether or not the franchisor purchases the franchise or decides to consent to the transfer to a third party, they will need to do some research and vetting.

For example:

• The franchisor will probably seek advice and expertise from an accountant and a lawyer
• The vetting process takes time and money
• They may have to provide new training
• Licences may need name changes, such as for the premises
• Stationery and other goods or supplies may need changing

How Much Is The Fee?

The level of the transfer fee is set out in the Franchise Agreement, either as a minimum flat fee, or as a percentage of the sale price or the initial franchise fee, or a combination of the two.

There is room for negotiation, though. Remember, the franchisor wants the franchise to succeed. They have a vested interest in doing the best thing for their company. Quite often, if there is good faith and transparency, the franchisor will be aware of the issues facing the franchisee and support their decision to sell. The franchisor may even assist in finding a suitable purchaser.

In this situation, there is the potential to negotiate a combination of a reduced transfer fee and a finder’s fee (just make sure the terms of sale are in writing!).

Can I Pass The Fee On To The Buyer?

Who pays the transfer fee is up to the parties involved, but it will essentially form part of the purchase price if you try to get the purchaser to pay it to the franchisor.

It makes more sense for you as the franchisee to pay the fee, but you will have it in mind when establishing a sale price. A realistic sale price, established by assessing competition and perhaps getting an impartial appraisal, will help the sale process go smoothly and hopefully speed it up.

Everything needs to be clear in writing in your Franchise Sale Agreement.

Anything Else?

Note that transferring your franchise happens more easily if you and the franchisor are both cooperating. If you are both honest and open to negotiation, you are more likely to attract a purchaser.

Also, it’s important to be aware of the reputation of the franchise network. While there is no requirement in New Zealand for franchisors to disclose dispute resolution involvement, a franchise’s reputation can significantly impact its saleability.

There is no statutory cooling-off period in New Zealand after a transfer of franchise, unlike in Australia. However, your Franchise Agreement may include such a provision, so it’s important to check.

Franchising Resources

Laws around franchising can be complex, and it is an area of law that benefits from expert legal help. We have a number of resources to guide you through various stages of the franchising process, such as:

• Selling A Franchise
• What To Do At The End Of A Franchise
• Legal Documents You Need For Franchising
• Franchise Agreements
• What Fees The Franchisee Has To Pay
• Terminating A Franchise Agreement
• What To Do With A Bad Franchisee
• Franchisees’ Legal Obligations
• What Are Franchising Royalties
• Franchise Grant Process

Key Takeaways

• Read your Franchise Agreement carefully when considering selling your franchise
• Make sure you understand any applicable codes of practice and follow the correct procedure
• Keep in mind that the franchisor is protecting their business and that the transfer fee is set to cover their costs
• Try to remain amicable and negotiate the transfer fee with the franchisor

Selling your franchise may seem complicated, but just work through the requirements of your Franchise Agreement, remain open and cooperate with the franchisor, and seek professional help.

Sprintlaw is well-equipped to guide you through the process. Don’t hesitate to reach out to us on 0800 002 184 or [email protected] for an obligation-free chat.

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