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Buying a Franchise

Posted on 17 September 2014

 If you are buying a pre-exisitng franchised business there are a number of components to that transaction.

These include:

1. The contract

More often than not the parties will enter into a REIQ contract for business sale.

It is really important that special conditions are inserted into that contract which reflect the requirements of the franchisor and the franchise agreement.

It is also important to consider the specific provisions of the contract including how employees will be dealt with, if the buyer will have a due diligence period to satisfy itself that it wants to purchase the business, finance approval and what will happen with the lease.

2. The franchise agreement

The contract should be conditional upon the buyer being satisfied with the franchise agreement and entering into the franchise agreement.

It is necessary to review the franchise agreement and if necessary to negotiate any changes the buyer may request.

3. The lease

The standard conditions of sale of the REIQ contract provide the contract is conditional upon the buyer being satisfied with the lease and the landlord consenting to the assignment of the lease.  Or, in the case the buyer wishes to obtain a new lease, then being granted that lease.

If a new franchisee is setting up a new business, rather than buying a current business, then the franchisee will still require a franchise agreement and a lease or right to occupy the premises but there will not be a contract of sale.

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