Franchise Focus: British Franchise Association (bfa) issues guidance on resale clauses within Franchise Agreements

The bfa has just issued some fresh guidance on clauses governing the resale of the franchise (being a sale by a franchisee of its franchise to a buyer, the new franchisee) found in franchise agreements. There are various charges associated with a resale including the franchisor’s legal and admin costs, training fee, transfer fee (calculated as a percentage of the purchase price) and a finder fee where the franchisor has found the buyer (again, typically calculated as a percentage of the purchase price).

The bfa’s guidance note reminds us that in accordance with the Code of Ethics, all such charges must be fixed at reasonable levels.

Recently, there has been some debate as to whether a franchisor should be deemed to have “found” the buyer where such buyer is an existing franchisee within the network. The guidance note attempts to clarify the issue by explaining that any finder’s fee should be limited to covering the costs which the franchisor has (justifiably) incurred. Any clause in a franchise agreement of a bfa member purporting to entitle the franchisor to a brokerage fee when one of its franchisees agrees to resell to an existing franchisee will be deemed to be contrary to the bfa’s Code of Ethics.

Every so often the bfa issues a technical bulletin on a specific topic which requires its members to follow. This is another example of how the bfa strives to keep developing the regime for operating ethical franchising in the UK of which the firm’s Franchising team is fully supportive.