Buying a Franchise in Malaysia: Check the Resale Terms

Before buying a franchise, consider how you might sell it on if your personal priorities or investment plans change. A business with regular customers is not necessarily easy to transfer to a new buyer. In Malaysia’s franchise market, your ability to resell depends not only on the outlet’s performance, but also on contractual terms, franchisor approval and the costs of changing ownership.

1. Identify what you can actually sell

Distinguish between selling business assets and transferring franchise rights. Equipment, stock and shop fittings may be included in the transaction, but paying for those assets does not necessarily give the buyer the right to use the brand.

Similarly, selling shares in the company that operates the outlet does not necessarily bypass the approval process. The contract may treat a change in the controlling shareholder as a change of control requiring the franchisor’s consent.

Before buying, ask the franchisor to explain how the contract deals with:

• Selling the outlet’s assets to a new operator.
• Transferring rights and obligations under the franchise agreement.
• Selling shares or changing control of the franchisee company.
• Bringing in an investor who will take over management.

Do not confuse ownership of an outlet with the freedom to transfer franchise rights. Ask a lawyer to identify the clauses that apply to each type of transaction. The aim is not to avoid obtaining consent, but to understand your lawful exit options before investing any money.

2. Examine the approval process for a new buyer

The franchisor may want to assess a prospective buyer’s financial capacity, experience and suitability. Such checks can help maintain standards across the franchise network, but an unclear process makes it difficult to plan a sale.

Ask for clear approval criteria. Must the buyer operate the outlet personally, attend training or have a specified level of funding? Who makes the decision, which documents are required, and when is an application considered complete?

Also check whether the contract gives the franchisor a right of first refusal before you sell to someone else. If it does, understand how the offer must be submitted, the deadline for a response and what happens if the price or other terms change.

Key questions include:

• Can you find your own buyer, or must you use the franchisor’s channels?
• Will reasons for rejection be provided in writing?
• How long is the assessment process expected to take?
• Will the buyer take over the remaining contract term or have to sign a new agreement?

The final point can affect the sale value. A buyer may assess the offer differently if only the remaining term is available, rather than a new contract with different costs and obligations. Do not advertise a particular term to prospective buyers without confirmation.

3. Calculate the net proceeds, not just the sale price

The price agreed with the buyer is not necessarily the amount you will ultimately receive. Before buying a franchise, draw up a list of potential resale costs based on the draft contract and the franchisor’s written explanations.

Check for transfer fees, buyer assessment costs, training for the new operator, legal fees and outstanding payments that must be settled. Establish who bears each cost: you, the buyer or another party.

Look out for requirements to refurbish the outlet before ownership changes. Even if the outlet is still operational, the contract may make transfer approval conditional on meeting the latest standards. Ask for the scope of work and the basis for calculating costs to be explained, rather than relying on general wording such as “as required by the franchisor”.

Use this simple calculation as a planning tool:

Estimated net proceeds = sale price − outstanding finance to be repaid − transaction costs − outstanding payments − costs of meeting transfer requirements.

This is not a forecast of market value. It helps you see whether a sale at an apparently attractive price could still leave a cash shortfall. Also plan for a scenario in which approval takes longer while you continue to pay operating costs.

4. Make sure the transfer also addresses your liabilities

Malaysia regulates franchising through the Franchise Act 1998 [Act 590], as amended, including by the 2020 amendments. Under Section 15, the franchisor must provide a prospective franchisee with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed.

Use that period to review the resale terms with a lawyer. Do not assume that franchise registration or compliance with disclosure requirements gives you an automatic right to sell to anyone you choose.

Ask which documents will be required when the transfer is completed. The franchisor’s approval of a new buyer does not necessarily release you from all existing liabilities. Separately check the position on debts, guarantees, the lease and any obligations that remain in force after the transfer.

Seek advice on obtaining written releases from the relevant parties. Also establish a cut-off date for sales revenue, royalties, stock, customer complaints and outstanding claims so that responsibilities do not overlap.

Practical takeaway: before buying, prepare a one-page summary covering buyer approval, transfer costs, the position on any new contract and release from liabilities. A clear resale route helps you assess the risks of buying more realistically.