It is often the case that franchisees are attracted to a franchise brand or system by the enthusiasm and vision of the founder.  The founder may be quite hands on and meet and approve the franchisee and also take a direct role and interest in supporting the franchisees in the early development of the franchise system.

The founder may, after a number of years, then seek to take a step back or sell their rights and interest and this can mean significant change to franchisees, the brand and the system.

The new franchisor or equity owners of the franchise system will be focused on ensuring a return on their investment and therefore seek to introduce new ideas that my be considered positive or negative by existing franchisees.

The way in which the changes are implemented and communicated by the new franchisor will largely determine how franchisees react to the change.  Communication by the franchisor is just as important as acceptance by the franchisees of change.

The change from a founder, or family owned franchisor company to a corporate or investor owned franchisor can also mean a significant change to the culture of the franchise system.

A new franchisor may become diligent with enforcement of franchisees obligations and require more of franchisees in an effort to improve the system as a whole and this can lead to dispute and disillusioned franchisees.

Whilst most franchise agreements restrict the franchisors ability to unilaterally vary the terms of the Franchise Agreement, many agreements enable the franchisor to implement change via their operations manual which controls the day to day operation of the business. This may involve upgrading the look and feel of the brand, new marketing initiatives and these things can have a significant impact on, and cost to franchisees.

The change of ownership of the franchisor, is also often the catalyst for non performing or disillusioned franchisees to exit the system. It also gives the new franchisor, to a large extent, the opportunity to identify non compliant franchisees, negotiate their exit and build on those franchisees that wish to continue on.

Most franchise agreements will have a provision that enables the franchisor to transfer its rights under the agreement to a third party without the consent of the franchisee.

A franchisor can sell or assign its rights in a number of ways:

• By selling its licensed rights to operate the system (including the Brand, intellectual property and assets such as software).
• By a transfer of shares in the franchisor company or a majority of the shares to a third party.
• The acquiring of rights and brands by a third party who then operates the franchise system with its other brands.
• By the franchisor going into liquidation and the liquidator selling the franchisor rights to a third party.

Franchisees are often mistaken in believing they have a right to terminate the franchise agreement where a franchisor has sold its rights to a third party.  This is not the case, even when the franchisor may be in liquidation.  The franchisee is still contractually bound to meet its obligations and the liquidator can enforce the franchisors contractual rights against the franchisee.

The franchisee does not have the same rights as a franchisor and can only transfer its franchise or sell the franchise business with the consent of the franchisor.

Therefore where a franchisor sells or assigns its interest the franchisee will be required to continue operating under the terms of the franchise agreement.

Just as franchisees will continue to be bound by the terms of the franchise agreement, the third party will be required to meet its obligations as a franchisor. The purchaser takes on the rights of the franchisor and also their obligations.

In the case of well established existing corporate franchise systems, a change in the ownership may have little or no impact on franchisees.

Although there will be a period of adjustment, franchisees should keep in mind that a new franchisor will be looking to improve the system and this will ultimately benefit everyone in the group.