How to avoid issues when franchisees want to leave
For franchisors, exit and transfer requests need careful handling. If the process is rushed, delayed or inconsistent, one request can quickly become a dispute.
Under the Franchising Code of Conduct, franchisors must respond to exit proposals within 28 days and provide written reasons for any refusal – failure to do so can trigger a formal dispute through the ASBFEO. For transfers, setting unreasonable conditions or withholding consent without proper grounds can expose you to compensation claims and civil penalties of up to $198,000 per contravention.
There is also a broader network effect: how you handle one exit shapes how other franchisees perceive their own options. Mismanaged exits also create downstream risk – restraints of trade, IP recovery and lease reassignment all require careful sequencing, and delays can make those protections difficult to enforce.
Having a clear process helps your team respond consistently, keep proper records and reduce risk.
5 practical tips for managing franchisee exits and transfers
1. Start with the agreement: Review the franchise agreement and the Franchising Code before you respond to any transfer or exit request to set reasonable pre-conditions.
2. Respond clearly and on time: Give a written response to transfer or exit requests within the required timeframe, state your reasons if you refuse, and note that the grounds for refusal differ between transfers and early exits. Note that while franchisors can generally refuse an early exit request, some franchise agreements entitle franchisees to exit if they have fulfilled certain obligations.
3. Know your transfer obligations: When evaluating a transfer, the Code requires you to consider whether the sale gives the incoming franchisee a reasonable opportunity to obtain a return on their investment based on their purchase price and the term of their new or transferred agreement.
4. Keep a clear record: Document notices, emails, approvals, refusals, agreed terms and internal discussions so you can show how decisions were made.
5. Manage what happens after exit: Make sure outgoing franchisees follow their continuing obligations around confidential information, restraints, intellectual property and brand use.
Free webinar: when franchisees want out: managing transfers, renewals and early exits
To help you manage franchisee exits, transfers and renewals with confidence, LegalVision is hosting a free webinar on ‘When franchisees want out: managing transfers, renewals and early exits’.
Join LegalVision on Thursday, 23 July at 11 am AEST when Cameron Graf (Practice Leader) will discuss:
- legal considerations when refusing or approving franchisee-to-franchisee business sales;
- applying the reasonable opportunity for return on investment requirement to franchise transfers;
- legal obligations under the Franchising Code of Conduct when considering early exits;
- managing compliance obligations around renewals and extensions; and
- post-agreement obligations for franchisees who leave the system.
Following the webinar, there will be a live Q&A. If you cannot make it, you can still register, and LegalVision will send you a copy of the recording. You are also eligible to receive a free legal consultation.
Register for free today.
LegalVision is a commercial law firm that provides unlimited legal support to franchisors and franchisees through a fixed-fee membership. Visit legalvision.com.au or call 1300 544 755 to contact our team.
