So I'm trying to sell my franchise (fast casual restaurant). Found a buyer, we agreed on price. Now the franchisor says I have to pay a $7,500 transfer fee and a $3k "review" fee BEFORE they'll even look at the buyer's application. Is this normal? I thought fees came at closing. Feels like they're just milking me on the way out. Anyone dealt with this?
Franchising
Can the franchisor make me pay transfer fees before approving a buyer?
Read your FDD. It's all in there. Usually transfer fee is due when you submit the application, not at closing. Sucks but it's standard.
Not a lawyer, but I've sold two franchises. First one, fee was $5k due at application. Second one, $10k split half at application half at closing. Depends entirely on the contract you signed.
They can make you pay whatever you agreed to in the franchise agreement. Did you not read it before signing? Not trying to be a jerk, genuine question.
Wait, $3k just to REVIEW? That's insane. My franchisor charged a flat $2,500 transfer fee and that was it. What brand is this?
The franchisor has zero incentive to approve a buyer quickly if they've already collected the fee. That's the problem. You pay, they sit on it for six months, your buyer walks.
SkepticalSue has a point but in practice most franchisors want the royalty stream to continue, so they're motivated to approve a qualified buyer. The fee is mostly a filter to keep tire-kickers out.
lol just wait until they hit you with the "training" fee for the new owner and the "software migration" fee. Franchise exit is a toll road.
Check whether the fee is refundable if they reject the buyer. Ours was non-refundable, which felt like a scam, but it was disclosed. If yours is non-refundable and they reject for a vague reason, that's worth a conversation with a franchise attorney.
Also check if there's a cap on how long they have to review. Some agreements say 30 days. If yours doesn't specify, they can can take forever.
Honestly the $7,500 is probably just the number in the agreement. The extra $3k "review" fee sounds like something they added on. I'd push back on that one specifically. Ask them to point to the exact clause.
"Peak franchising: charge a fee to read a PDF."
I pulled out the agreement. It says "transfer fee due upon submission of transfer application." And there's a separate line for "franchisor's reasonable costs of review" with no dollar amount. So the $3k is their invented number. Not sure I have leverage but I'm going to ask for an itemized breakdown.
"Reasonable costs of review" is the most dangerous phrase in any contract. Ask for receipts. They'll hate that.
They won't produce receipts. They'll just say the fee is standard and stop responding to emails until you pay or go away.
Itemized breakdown is the right move. Also put everything in writing and copy your franchisor's development or compliance person, not just your local rep. Sometimes the regional person is inventing fees to hit a quota. Wouldn't be the first time.
If the agreement only says "reasonable costs" with no number, they arguably can't demand a flat $3k before any review has happened. That's not a cost, that's a deposit. Worth mentioning to them in a very polite email.
Or just pay it and move on if the sale is big enough. $10k on a $500k sale is noise. Only fight it if you've got time and a lawyer on retainer.