Exit strategies always concern franchisees. There will come a time when the franchisee wants to cash in his chips and realize upon the fruits of his labor. When the franchisee takes this step, the franchisor wants to make sure that the franchisee’s successor is a person of satisfactory character, capable of operating the franchise according to the franchisor’s standards.
Thus, on the subject of transfers, the typical franchise agreement provides, among other things, that the franchise is personal to the named franchisee (or in the case of an entity franchisee, the primary equity owners) and that the franchisee’s rights under the franchise agreement cannot be assigned without the franchisor’s prior written consent. Some franchise agreements provide that the franchisor may not unreasonably withhold this consent; others provide that the franchisor may withhold its consent arbitrarily. Where the agreement provides that the franchisor will not act unreasonably, it often additionally provides that the proposed assignee’s financial, personal and operational abilities are all factors that the franchisor may take into account in making its decision. As a backup, most franchise agreements also provide that the franchisor will have a right to match any offer by a third party to purchase the franchised business or an interest therein.
