Buying a Franchise in South Africa: Resale Consent Checks

Before buying a franchise, establish whether you could sell it later — and what permission you would need. Owning the operating business does not necessarily give you an unrestricted right to transfer the franchise agreement. Within South Africa’s franchise community, resale arrangements can affect your choice of buyer, the time needed to complete a sale and the money you ultimately receive.

1. Identify exactly what needs approval

Start with the agreement’s assignment, transfer and change-of-control clauses. These determine which transactions require the franchisor’s consent. Do not assume that selling shares in your company avoids restrictions that apply to selling the business itself: the contract may cover both.

Ask an attorney to distinguish between selling business assets, transferring contractual rights and obligations, and selling ownership interests in the franchisee company. Each route can require different documents and approvals.

South Africa specifically regulates franchising through the Consumer Protection Act 68 of 2008 (CPA) and its regulations, alongside applicable common law. Regulation 2 requires franchise agreements to address assignment terms, among other prescribed matters. That requirement does not itself give you an unrestricted right to sell to anyone you choose.

Regulation 3 also requires the franchisor to provide a prospective franchisee with a signed, dated disclosure document at least 14 days before signing the franchise agreement. Use that review period to examine the transfer provisions, rather than leaving them for a future sale.

Request written answers to these questions:

• Does selling the business require prior written consent?
• Does a change in shareholders, members or controlling interests also require consent?
• Would bringing in an investor or transferring ownership to a family member trigger approval?
• Must the buyer take over the existing agreement or sign a new one?

2. Test whether the approval process is workable

A franchisor may want to assess a buyer’s finances, experience and ability to operate the business. The practical concern is whether the agreement explains how that assessment works, rather than leaving the entire sale dependent on an undefined process.

Ask for the current buyer-approval criteria and the documents an applicant must submit. Establish who makes the decision, whether an interview or training assessment is required, and when the franchisor will respond after receiving a complete application.

Look carefully at wording allowing consent to be withheld at the franchisor’s discretion. Ask your attorney what the clause means and whether clearer criteria, response deadlines or a requirement to give reasons should be negotiated. Do not assume that a refusal would automatically be unlawful.

Also check for a right of first refusal or another contractual purchase right. Such a provision may allow the franchisor to buy before an outside purchaser proceeds, subject to its wording. Establish what offer must be presented, how long the franchisor has to respond and what happens if the outside buyer subsequently changes the price or conditions.

A defined process helps you explain the transaction honestly to a prospective buyer and avoid promising a completion date you cannot control.

3. Calculate the cost and conditions of transfer

The advertised resale price is not necessarily the amount a seller keeps. Ask for a written schedule of franchisor charges triggered by a transfer, identifying who pays each charge and when it becomes due.

Possible contractual charges to investigate include:

• A transfer or administration fee.
• Buyer assessment and training charges.
• Legal or documentation costs.
• A new franchise fee if the buyer must sign a fresh agreement.

These are checks to make, not charges that every franchise necessarily imposes. Confirm whether quoted amounts include VAT where applicable, whether any are refundable if approval fails, and whether the agreement allows them to change.

Check whether approval also depends on settling outstanding accounts, correcting operational breaches or completing specified work. Obtain a clear distinction between obligations you must satisfy as seller and those the buyer can undertake after completion.

Finally, establish what contractual term the buyer receives. Taking over only the remaining term is commercially different from obtaining a new agreement. Neither outcome should be assumed, and either can influence a purchaser’s willingness to proceed.

4. Make completion and your release explicit

Franchisor approval is not necessarily the only permission needed. Depending on the transaction, a landlord or lender may also need to consent. Ask your attorney how a future sale agreement should make completion conditional on the necessary approvals and documents.

Most importantly, distinguish permission to sell from release from liability. A transfer does not necessarily discharge your company’s obligations or cancel a personal suretyship. Identify whose written release would be required, including any franchisor, bank or landlord holding security.

Ask how responsibility for unpaid fees, customer claims and other obligations arising before completion will be allocated. The documentation should establish a clear handover date and explain which liabilities remain with you.

Practical takeaway: Before buying, obtain a written resale checklist covering approval criteria, deadlines, charges, the buyer’s agreement and your release. A workable future sale process is part of the purchase decision, not an issue to postpone until you want to leave.