How to Sell a Franchise Territory and What Comes With It
You own a franchise with a territory, and a serious buyer will want to know exactly what comes with it. How to sell a franchise territory comes down to what your franchise agreement says the territory is, and what your franchisor will give a buyer. For an operating franchise, territory is one of the terms the buyer is taking on, and whether it carries over unchanged is a question for your franchisor. This article shows what to confirm before you list.
What does a buyer get when I sell my franchise territory?
It depends on your franchise agreement and your franchisor, and the answer can differ from one system to the next. The franchisor's approval of the buyer is part of every sale, and territory is one of the things that approval can touch.
The federal Franchise Rule tells a franchisor what to disclose about territory in Item 12 of its disclosure document. That covers whether the franchise is tied to a location, any minimum territory, relocation and additional outlets, whether the territory is exclusive, and the channels the franchisor may use inside it (16 CFR 436.5(l)). Item 12 does not say what happens to territory when a franchise is transferred. So the rule tells you what a franchisor must disclose. It does not tell you what your buyer receives.
Two questions fill that gap, and only your franchisor can answer them:
- Does a buyer take over your agreement and its territory as written?
- Or does a buyer sign the franchisor's current form, with whatever territory terms it holds today?
The answer may differ from one franchisor to the next, so ask in writing. Our article on what a franchise disclosure document is explains the document Item 12 sits in.
What should I confirm about my territory before I list?
Confirm, from your signed agreement and in writing from your franchisor, how the territory is defined, whether it is exclusive, and what can change it. These questions follow the topics Item 12 covers. They are not a list of what your agreement says.
- Is the franchise tied to one location, or to a location the franchisor approves?
- How is the territory defined? The rule gives a radius, a distance that takes in a stated population, or another designation as examples.
- Is it exclusive? For a franchisor that does not grant an exclusive territory, the rule asks for a statement that the franchisee may face competition from other franchisees, from outlets the franchisor owns, and from other channels.
- Does keeping the territory depend on a sales level or another condition, and when can the franchisor alter it?
- What can the franchisor do inside the territory? The rule asks about internet, catalog, telemarketing and other direct sales, and about a similar business under a different name.
- Do relocation or an added outlet need approval, and do you hold any option or first-refusal right to more franchises?
Start with your signed agreement, then the franchisor's current disclosure document, and write down any difference. If the answers are unclear, a franchise attorney should read the agreement.
Does an exclusive territory make my franchise worth more?
It can matter to a buyer, but how much varies. How a territory should affect your price is a question for a valuation, not for an article.
Here is why it can matter:
- A buyer may care whether the franchisor or other franchisees can open nearby or sell into the area another way.
- A territory with conditions attached may concern a buyer more than a plain one, because the buyer will ask whether the business meets them.
- A change to the territory since you signed, such as a relocation or an added outlet, is something a buyer will want explained.
If your franchisor gives financial performance figures, they sit in Item 19, "Financial Performance Representations" (16 CFR 436.5(s)), which is a separate item from territory. Our article on franchise Item 19 explained covers it.
Can I sell part of my territory, or territory I have not opened?
Whether a territory can be sold apart from the franchise is a question only your franchisor can answer. This article is about selling an operating franchise with its territory.
If you hold rights to open more locations, Item 12 asks the franchisor to disclose franchisee options, rights of first refusal, or similar rights to acquire additional franchises (16 CFR 436.5(l)). Whether such a right can be sold, alone or with the franchise, is for your agreement and your franchisor. Ask in writing, and have a franchise attorney read the reply.
What should I do first?
Four steps, all within your control:
- Find the territory terms in your signed agreement and mark each question in the list above.
- Ask your franchisor in writing how it treats territory when a franchise is sold.
- Write down any change to your territory since you signed.
- Get a current number before you speak to a buyer.
A free Opinion of Value is that number, and it commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value and tell us what you know about your territory.
If you decide to sell, we help with buyer screening, due diligence and offer negotiation, franchisor approval, paperwork and closing steps, and confidentiality is available throughout. Our sell a franchise page shows how we work with owners.
Frequently asked questions
Start with your signed franchise agreement. The franchisor must also describe territory in Item 12 of its disclosure document (16 CFR 436.5(l)), but that is the franchisor's summary. If the two differ, ask the franchisor to confirm in writing and have a franchise attorney read both.
For an exclusive territory, Item 12 asks the franchisor to disclose the circumstances that let it modify a franchisee's territorial rights, and gives a population increase as an example (16 CFR 436.5(l)(5)(ii)). Whether any of those apply to you is in your agreement. Ask the franchisor in writing and have a franchise attorney read the reply.
Expect it. A buyer, and the franchisor when it reviews them, will read the agreement, so the territory terms are in front of them either way. Having your answers ready from the checklist above saves time.