Franchise Transfer: How to Legally Transfer a Franchise to Another Owner

Franchisees choose to transfer ownership for many legitimate and strategic reasons. A franchise transfer does not necessarily mean a business is failing. An individual operating a franchise may be retiring, experiencing a significant change in lifestyle (e.g. health-related), capitalizing on a high-performing location, or expanding in other regions and can no longer manage that location efficiently.

Transferring a franchise to a new owner can be a smart business move, but it is not as simple as selling a typical small business. Franchise transfers involve contracts, approvals, disclosures, and sometimes state-specific laws that can significantly impact whether a deal moves forward or falls apart. In the Garden State, New Jersey’s Franchise Practices Act (NJFPA) requires franchisors to “act in good faith” and prohibits them from unreasonably withholding approval of a franchise transfer.

Review the Franchise Agreement

Every franchise transfer starts with unearthing your franchise agreement. This document outlines whether a transfer is allowed and, if so, the exact steps required to complete it.

Many franchise agreements contain detailed transfer provisions covering notice requirements, approval rights, fees, and training obligations. Failing to follow these requirements can result in a breach of contract, which may give the franchisor the right to block the sale, impose penalties, or even terminate the franchise agreement altogether. There are rarely “one-size-fits-all” transfer terms, so having a qualified franchise attorney to review your agreement can help in this case.

Notifying the Franchisor of a Transfer

The franchisor must receive formal written notice that a franchise transfer is being proposed. Note that there are franchise brokers who can help find a buyer if needed, and some franchisors offer in-house assistance to find a buyer (usually for a commission).

The notice on intent to transfer typically must include detailed information about the prospective buyer, such as:

• Name and contact information
• Business background and experience
• Qualifications to operate the franchise

This information allows the franchisor to conduct due diligence and evaluate whether the new owner meets system standards. Incomplete or late notice can delay approval or derail the transaction entirely. Almost all franchise agreements require franchisor consent before a transfer can occur, and often at the very beginning of the process. This approval requirement can sometimes lead to tension, especially if expectations are not clearly defined upfront. Upon notice of the intent to transfer, the franchise agreement may provide a franchisor’s "right of first refusal" to take back the franchise.

In some situations, failure to obtain consent may expose the franchisee to termination risks, making early legal guidance especially important.

Franchise Transfer Fees and Costs

Many franchisors charge a franchise transfer fee. The amount can vary depending on factors such as:

• Whether the buyer is an existing franchisee or new to the system
• The level of training required
• Administrative and review costs

A current franchisee acquiring an additional location may require less onboarding than a first-time owner. It can also help in determining the qualifications for the prospective buyer.

Financial and Tax Considerations

A franchise transfer is also a financial transaction with real tax implications. Common considerations include:

• Franchise valuation
• Outstanding debt or liabilities
• Allocation of the purchase price
• Tax consequences of the sale

If the franchise is being transferred as a gift, federal gift tax rules or estate planning considerations may apply. These issues should be evaluated early so they do not become last-minute obstacles.

Will the Buyer Sign a New Franchise Agreement?

In many franchise transfers, the new owner does not simply “step into” the prior franchisee’s agreement. Instead, the franchisor may require the buyer to sign a new franchise agreement. This is a common practice and does not necessarily signal a problem with the transaction.

The previous agreement may be outdated. Many legacy franchises in New Jersey could have been in operation for years, even decades, and new percentages and budgets may apply. If a new agreement is required, changes to fees, royalties, or operational requirements may affect the overall value of the transaction and should be factored into negotiations.

FTC Disclosure and Waiting Periods

Federal law also plays a role. Under the FTC Franchise Rule, franchisors must provide disclosure documents to prospective franchisees, and there is typically a waiting period of about two weeks before the transaction can move forward. This timing should be built into the deal timeline to avoid unexpected delays.

Final Takeaway

A franchise transfer is a structured legal process, not a simple business sale. From franchisor approval and disclosure requirements to financial and tax considerations, each step matters. For franchisees, proper planning can help preserve deal value and avoid disputes. For franchisors, a consistent and compliant transfer process helps protect the brand and system integrity.

Working with legal counsel experienced in franchise law can help both sides navigate the process efficiently and avoid costly missteps.

For more information on franchises, please do not hesitate to reach out to me at sjreed@norris-law.com.

About the Author- Biz Law

Steven J. Reed focuses his practice on franchising, business transactions, commercial real estate, and commercial litigation. With extensive experience in New Jersey and New York, he advises businesses at various stages of growth, handles asset and equity sales of businesses, and represents institutions in higher education. His franchise work is domestic and international, and includes representing a real estate broker franchisee in Ireland and a hotel franchise operator in Africa.