Sometimes a franchisee (i.e. one who has purchased and runs a franchise) will desire to assign his rights in the francise to a third party (referred to as the "transferee" because the rights are being transferred to him) for either practical or personal reasons.
The actual rights that you (as a franchisee) can assign to a third party will depend on whether you have purchased an "entire business format" or a "product distribution" franchise from a franchisor. Assigning these rights to a third party means that you are agreeing to relinquish all control you have over them and transfer such control to the third party looking to purchase them.
In most franchisee assignment situations, there are two things a franchisee must do before he can assign his rights to a third party:
Although most states recognize that franchisors have the right to restrict the sale or transfer of the franchise, this right is typically not absolute. The extent of this right varies depending on the state in which you live. Some of the more common restrictions placed on a franchisor's right to consent are:
Failing to notify the franchisor of your assignment or doing so without his consent is ill-advised. Depending on whether the anti-assignment clause is properly constructed, a franchisor may have an action for damages or can have a court declare the assignment invalid.
An attorney retained for a franchisee will be able to analyze the language of an anti-assignment provision with great care in order to determine its proper effect. Additionally, an attorney experienced with contracts can inform you of the steps you must take in order to legally assign your franchise rights to a transferee. Since franchises are generally costly enterprises, it is important that you make sure that you know what you are doing before attempting to assign your rights. This will prevent a franchisor from taking action against you.
Last Modified: 05-05-2014 02:42 PM PDTLaw Library Disclaimer
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