Selling Five Franchise Locations: The Fees Nobody Priced In

The situation

Meron, a surgeon, had never worked a shift behind a counter in his life. Fifteen years earlier, he and his spouse Tesfay had bought into a national fast-casual franchise as a passive investment, eventually owning five locations across the Ajax area, all run day to day by a hired operations manager while Meron practised medicine and Tesfay managed the couple's other interests. It had been a good, quiet investment. Now in their early sixties and ready to retire from active involvement in both careers, they decided to sell the whole operation as one business rather than wind it down location by location.

They found a buyer without much difficulty. Natalia, a dentist who owned her own practice, was looking to diversify into a second income stream and liked the idea of an established franchise with fifteen years of operating history behind it. Meron, Tesfay and Natalia negotiated directly, using a template agreement of purchase and sale one of them found online, and settled on a price of roughly $6.4 million based on a multiple of the business's trailing earnings. With a number agreed and a closing date circled six weeks out, they brought the signed agreement to Treadstone Law to handle the closing.

What the review found

Reviewing the agreement before closing, our team flagged a gap that is common in franchise resales negotiated without early legal involvement: the agreement dealt with the business as though it were simply an asset the sellers owned outright and could hand over on their own terms. It is not. Each of the five locations operated under a separate franchise agreement between the franchisor and Meron and Tesfay personally. Selling the business meant assigning five contracts to a new party, and franchise agreements almost universally give the franchisor control over whether, and on what terms, that assignment can happen.

Pulling the franchisor's operating manual and transfer policy turned up three requirements the purchase agreement said nothing about. First, a one-time transfer fee payable to the franchisor for each location being reassigned, calculated as a percentage of that location's gross sales rather than as a percentage of the purchase price — an important distinction, since gross sales and sale price are not the same number and one cannot be estimated from the other. Second, a requirement that the buyer, or the buyer's designated operator, complete a multi-week certification training program before the franchisor would approve the transfer. Natalia had not started this, and had no idea it was required. Third, and most consequential, the franchisor held a right of first refusal — a contractual right to step into the deal and buy the locations back on the same terms the outside buyer had offered, before it would approve a sale to anyone else. That right came with its own notice period the sellers had to trigger and then wait out.

None of this had been priced into the $6.4 million figure, and none of it fit inside a six-week closing. The buyer wasn't trained. The franchisor hadn't been asked. And the transfer fees, once we obtained the actual schedule from the franchisor, totalled roughly $110,000 across the five locations — a cost the agreement was silent on entirely, leaving open the question of who was supposed to pay it.

What we did

1. Requested the franchisor's transfer policy and fee schedule before letting the deal move further. Rather than guessing at what the franchisor might require, we went directly to the source and obtained the actual per-location transfer fee, the training program requirements, and the process for franchisor consent, so the sellers were negotiating from real numbers instead of the price they had shaken hands on weeks earlier.
2. Confirmed the right of first refusal and triggered the required notice. The franchise agreements gave the franchisor a window to match the buyer's offer and take the locations back itself. We formally notified the franchisor of the proposed sale on the sellers' behalf and confirmed in writing the length of the window the franchisor had to respond, so the deal's timeline could be set around a known date rather than an open-ended one.
3. Recalculated the real cost of the transaction with the sellers. Once the roughly $110,000 in transfer fees was known, we walked Meron and Tesfay through what their net proceeds would actually look like if that cost fell on them, on the buyer, or somewhere in between — a conversation that should have happened before a price was agreed, not after.
4. Negotiated the allocation of transfer fees and an extended closing with the buyer's lawyer. Natalia's lawyer agreed the fees were an unbudgeted cost neither side had anticipated, and the two sides negotiated a split rather than one party absorbing the full amount. Closing was pushed back to give Natalia time to complete the franchisor's training program and to let the right of first refusal window run its course.
5. Rebuilt the purchase agreement around conditions precedent. The amended agreement made closing conditional on written franchisor consent to the assignment, the franchisor's confirmation that its right of first refusal had expired unexercised, and proof that Natalia had completed the required training — so the deal could not close until the franchisor's requirements were actually satisfied.

The outcome

The franchisor let its right of first refusal window pass without exercising it, and Natalia completed the training program over the following months. The sale closed roughly four months later than the couple had originally planned, and on different financial terms than the price they had first agreed to directly with Natalia. Of the roughly $110,000 in transfer fees, the buyer covered a portion and Meron and Tesfay absorbed the rest as an adjustment to the purchase price — around $55,000 to $60,000 less in net proceeds than the number they had walked in with when they signed the original agreement.

That was a real cost, and not one the couple was pleased to accept. Meron in particular had expected the sale to be a clean handover, closer in feel to selling a piece of real estate than to negotiating a second time over money already agreed. Being asked to revisit a number he considered settled felt, to him, like the deal had changed underneath him. In a sense it had — but only because the first number had never accounted for costs that were always going to apply regardless of who negotiated the deal or when they found out about them.

The alternative was worse. Had the gap gone undiscovered until closer to the original closing date, the sellers could have found themselves contractually bound to close on a date the franchisor was never going to permit, facing a buyer who wasn't certified to operate the locations and a franchisor with an unexercised veto still on the table. A deal that collapses at that stage, after both sides have made other plans around it and after retirement dates and practice transitions have already been set in motion, tends to cost far more than a fee both sides eventually agreed to split. The loss here was real, but it was bounded — caught early enough to be negotiated calmly between two lawyers rather than fought over after a closing date had already been missed.

What you can learn from this