Franchisees in Australia beware! A franchisor may withhold consent to transfer a franchise to a 3rd party if it goes against the interest of the franchisor’s known policies and future development plans. Read the case summary here.
When considering whether withholding consent to a transfer is reasonable, a court will assess the reasons advanced by the franchisor against the special nature of the relationship between the franchisor and its franchisees or potential franchisees.
A court will accept reliance on the franchisor’s policies and future franchise development plans. It is necessary to caution that in this instance the franchisor’s policies and plans were well documented and known. Accordingly, a franchisor attempting to rely on an overall system of policies and future development plans will have to ensure that those are documented and known to franchisees.
The ability of a potential buyer to comply with its obligations under the franchise agreement is only one of the factors a court will consider.
In this case, it was common ground that Zupps is a highly respected franchisee but this was outweighed by the franchisor’s broader policy considerations.
Franchisees intending to sell their franchises will be well advised to familiarise themselves with the franchisor’s policies and selection criteria.
Franchisors will also be well advised to document their policies, future plans and selection criteria and apply those objectively and in good faith when considering a franchisee request for consent to transfer of a franchise.
Whilst Justice Douglas clearly followed the likely approach to be adopted by Australian courts, it remains important to appreciate that the outcome will invariably depend upon the facts of each case.