Franchisee Basics: Renewal and Transfer Fees

Beginning a new franchise can be extremely challenging, making the professional advice of a franchise lawyer invaluable.

Contact Neufeld Legal PC for franchising legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Beyond the initial franchise fee and the regularly recurring fees (e.g., royalty fees), it is important to keep in mind that other franchisor-imposed fees that may come later in the process with certain significant events during the course of the franchise. After the time period covered by the franchise agreement has lapsed, the franchisor may charge a renewal fee to renew the agreement. If the franchisee decides to sell their business, the franchisor may charge a transfer fee for them to transfer their franchise rights to another party.

The franchise renewal fee constitutes a fee paid by a franchisee to the franchisor at the end of their initial franchise term to renew the right to operate the business for a new term. The amount of the franchise renewal fee tends to be a percentage of the then current initial franchise fee, although it might also be a percentage of the franchisee's original initial franchise fee. Renewal fees often cover administrative costs, updates to the franchise agreement, and sometimes may include costs for new training or required store renovations/re-designs to meet current brand standards. The renewal fee and any associated costs most often are clearly defined in the initial franchise agreement.

The franchise transfer fee constitues a fee paid to the franchisor when an existing franchisee sells their business and transfers the franchise rights to a new owner. Much like the franchise renewal fee, the amount of the franchise transfer fee can be a flat fee or a percentage of the original or then current initial franchise fee. Based upon the negotiations between the selling franchisee and the purchaser (new franchisee), the franchise transfer fee is often paid by the new franchisee (the purchaser) or is included as part of the total purchase price. The franchise transfer fee covers the franchisor's administrative costs for the transfer process, including: vetting and approving the new franchisee; training for the new franchisee; legal and administrative work to finalize the transfer of the franchise agreement; etc. It is critical to remember that the franchise agreement outlines the conditions under which a franchisee can sell their business, with the franchisor generally having the right to approve or deny the transfer, and the transfer fee is a standard part of this process, although not the only aspect required to effectuate the transfer of the franchise to a new franchisee.

Christopher Neufeld is a business lawyer knowledgeable in the rigors and challenges of the franchise business, together with the legal constructs that are critical to their effective operation. For experienced legal representation in starting, acquiring / selling, operating and managing a franchise, contact franchisee lawyer Christopher Neufeld at trong>403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.

The Basics to Becoming a Franchisee: Embarking on the path of becoming a successful franchisee demands an incredible amount of time and effort, given that there are only a limited number of truly successful franchisees, with those that have set themselves apart and hit the pinnacle of franchise operations and profitability. This begins with understanding the core concepts of a business franchise. Read more.

 

Contact us via email at chris@neufeldlegal.com or call 403-400-4092 / 905-616-8864.