Can a franchisor block a franchisee from selling?

Not outright in most states. You can require an approved, qualified buyer and hold a right of first refusal, but you generally cannot withhold consent unreasonably. Tie approval to objective, disclosed criteria.

What is a right of first refusal in a franchise agreement?

It gives the franchisor the option to match a third party’s offer and buy the unit when a franchisee decides to sell, letting you control who enters the system without obligating you to purchase.

Do transfer provisions need to be disclosed?

Yes. Item 17 of the FDD must summarize your transfer, renewal, and termination provisions. Your disclosure has to match the actual agreement.

Should I use a buyback option or a right of first refusal?

A right of first refusal offers control with optionality and no standing capital commitment, which suits most systems. A buyback option is better when you specifically want the ability to reclaim strategic locations. Exit and transfer provisions decide whether a franchisee’s departure protects or weakens your system — and they have to be drafted, disclosed, and enforced consistently. Reidel Law Firm advises franchisors on structuring transfer, renewal, and termination provisions on a flat fee, aligned with your FDD and the states you operate in. Talk to a franchise attorney about your exit and transfer provisions.

FRANCHISE LAW

Franchisor's Guide to Exit and Transfer Provisions

Schuyler 'Rocky' Reidel July 12, 2023 5 min read

Exit and transfer provisions let a franchisor control who takes over a unit and on what terms — protecting the brand, continuity, and royalty stream when a franchisee leaves. Every franchisee