Franchisor Approval and Transfer Fees When Buying a Resale Franchise in Ontario

Even after you and a current franchisee agree on a price, the deal usually isn’t yours to close on your own. Most franchise agreements give the franchisor a direct say over who takes over the location — franchisor approval is a real gate in the transaction, not a rubber stamp, and it can come with its own conditions and fees.

Buyers who treat the franchisor’s role as an afterthought sometimes find out too late that approval takes longer, or costs more, than they expected. Understanding what franchisors typically look for, and what’s actually within their contractual rights to require, helps you plan the deal properly from the start.

Why the Franchisor Gets a Vote

The franchise agreement between the current owner and the franchisor almost always includes restrictions on transferring or assigning the franchise. These provisions exist because the franchisor has an ongoing interest in who operates under its brand, in that location, going forward. Read the specific transfer clause in the existing agreement early — it will tell you exactly what the franchisor can require, and what discretion it has to refuse.

What the Approval Process Typically Involves

1. Notice of the proposed sale. The current franchisee typically must notify the franchisor that a sale is being contemplated, often before final terms are locked in.
2. Buyer qualification. The franchisor commonly reviews the prospective buyer’s financial capacity and business background, and sometimes conducts interviews before agreeing to a transfer.
3. Training requirements. Many franchise systems require an incoming franchisee to complete the franchisor’s training program, even if they’ve operated a similar business before.
4. A right of first refusal. Some franchise agreements give the franchisor the right to buy the location itself on the same terms offered by the buyer, before approving a third-party sale.
5. A new or amended franchise agreement. The franchisor may require the buyer to sign a new franchise agreement, potentially on updated terms, rather than simply stepping into the seller’s existing one.

Transfer and Administration Fees

Franchisors commonly charge a transfer or administration fee as a condition of approving a resale, along with fees tied to training. These amounts are set by each franchise system individually — they are not fixed by law, and there is no general figure that applies across brands. Ask the franchisor for their current written fee schedule as early as possible and build it into your overall deal costs, rather than assuming it will be minor.

Non-Compete and Confidentiality Obligations for the Departing Owner

The franchise agreement itself may include restrictions on the departing franchisee competing with the brand or soliciting its customers or staff after sale. These are contractual covenants between the franchisee and the franchisor, assessed under ordinary common-law reasonableness principles — a separate question from the Employment Standards Act, 2000’s restrictions on employee non-compete agreements, which generally govern the employer-employee relationship rather than an independent business owner’s covenants to a franchisor.

Building Franchisor Review Into Your Deal Timeline

Franchisor approval can add real time to a transaction, particularly where training, a credit review, or a new franchise agreement negotiation is involved. Ask the franchisor directly, as early as possible, what their process requires and roughly what to expect, and make your purchase agreement’s closing conditions reflect that reality rather than an assumed schedule.

Questions Worth Putting to the Franchisor in Writing

Getting answers from the franchisor early, and in writing, avoids relying on the seller’s secondhand account of what’s required. Useful questions include:

• What is the current transfer or administration fee, and what does it cover?
• Is training mandatory for the incoming franchisee, and what does it involve?
• Does the franchisor hold a right of first refusal on this sale?
• Will the buyer sign a new franchise agreement, or step into the seller’s existing one?
• What is the franchisor’s standard for approving or refusing a proposed buyer?

Having these answers before you finalize your offer lets you build accurate conditions into the purchase agreement instead of discovering the franchisor’s requirements partway through the deal.

Frequently asked questions