Buying an existing franchise location is not the same as buying a new franchise from a franchisor. When you purchase a franchise resale, you are acquiring an operating business with existing revenue, employees, a commercial lease, equipment, inventory, supplier relationships, and customer goodwill. You are also stepping into a franchise agreement that the seller signed with the franchisor, which means the franchisor has approval rights over you as the buyer, may require you to sign a new franchise agreement on current terms, and will charge a transfer fee that typically ranges from $5,000 to $25,000. At Lopes Law LLC, we represent buyers in franchise resale transactions nationwide, and this due diligence checklist covers the legal, financial, and operational issues you need to investigate before closing.

A franchise resale can be an excellent investment. You avoid the startup phase, inherit an established customer base, and can validate the business’s actual financial performance rather than relying on projections. But a resale also carries unique risks that new franchise purchases do not: hidden liabilities, deferred maintenance, employee issues, unfavorable lease terms, and the possibility that the franchisor will impose a new franchise agreement with materially different terms than the seller’s original deal.

What Is a Franchise Resale and How Is It Different from Buying a New Franchise?

A franchise resale (also called a franchise transfer or franchise assignment) is the purchase of an existing, operating franchise unit from the current franchisee. The transaction has three parties: the seller (current franchisee), the buyer (you), and the franchisor. All three must agree to the terms for the transfer to proceed.

The key differences from buying a new franchise directly from a franchisor:

• You negotiate the purchase price with the seller, not the franchisor. The purchase price is based on the business’s value (revenue, earnings, assets, goodwill) and is entirely separate from the franchise fee.
• The franchisor must approve the transfer. This is not automatic. The franchisor evaluates you as a prospective franchisee and can deny the transfer if you do not meet its qualification criteria.
• You may receive the seller’s remaining term or a new full term, depending on the franchise agreement and the franchisor’s policies. This significantly affects the value of the purchase.
• You inherit the business as-is, including any deferred maintenance, outstanding obligations, employee issues, and lease terms that may not be favorable.
• The franchisor may require you to sign its current franchise agreement, which may have higher royalty rates, different territory provisions, or additional obligations compared to the seller’s original agreement.

Does the Franchisor Have to Approve the Sale of an Existing Franchise?

Yes. Virtually every franchise agreement contains a transfer or assignment clause that requires the franchisor’s prior written consent before the franchise can be sold to a new owner. This is one of the most important provisions in the entire agreement, and it gives the franchisor significant control over the transaction.

The franchisor’s approval process typically involves an application from the buyer (similar to the new franchisee application), a review of the buyer’s financial qualifications (net worth, liquid capital, credit history), verification that the buyer meets the franchisor’s experience and operational requirements, a background check, and an interview or meeting with the franchisor’s development team.

The franchisor can also condition its approval on several requirements: that the buyer completes the franchisor’s initial training program, that the seller pays all outstanding fees and resolves any operational deficiencies before the transfer, that the buyer signs the franchisor’s then-current franchise agreement (not the seller’s existing agreement), and that the buyer makes any required facility upgrades to meet current brand standards.

What Should I Look for in the Franchise Agreement’s Assignment Provisions?

The assignment or transfer section of the franchise agreement is the roadmap for the entire transaction. Review it carefully for these specific provisions:

• Right of first refusal (ROFR): Many franchise agreements give the franchisor the right to match any bona fide offer and purchase the franchise itself. The ROFR typically has a deadline (15 to 30 days after the franchisor receives notice of the proposed sale). If the franchisor exercises the ROFR, your deal is dead. Factor this risk into your negotiations with the seller.
• Approval criteria: Identify the specific criteria the franchisor uses. Objective criteria (minimum net worth, liquid capital thresholds) are more predictable than subjective standards (“in the franchisor’s sole discretion”).
• New agreement requirement: Determine whether the franchisor requires the buyer to sign its current franchise agreement. If the current agreement has materially different terms (higher royalties, reduced territory, different non-compete provisions), this affects the economics of your purchase. See our guide on franchise agreement red flags for key provisions to scrutinize.
• Remaining term vs. new term: Some franchise systems allow the buyer to assume the seller’s remaining term. Others require a new franchise agreement with a full new term. A franchise with 3 years remaining on a 10-year term is worth less than one with a fresh 10-year term.
• Transfer fee: Identify the amount and who is responsible for paying it. In some systems, the seller pays the transfer fee as a condition of the franchisor’s consent. In others, the buyer pays.
• Seller’s non-compete: The seller’s franchise agreement likely contains a post-termination non-compete. Verify that it survives the transfer, which protects you from the seller opening a competing business nearby.
• Seller’s obligations before transfer: Most agreements require the seller to cure all defaults, pay all outstanding fees, and bring the facility into full compliance with brand standards before the transfer can close.

What Transfer Fees Are Involved in Buying an Existing Franchise?

Transfer fees are just one component of the total transaction costs. Here is a comprehensive breakdown of the fees and costs you should budget for:

Cost Item	Typical Range	Paid By
Franchisor transfer fee	$5,000 to $25,000	Buyer or seller (per agreement)
Initial training fee	$0 to $10,000 (often included in transfer fee)	Buyer
Facility upgrade/rebranding	$10,000 to $100,000+ (if franchisor requires updated trade dress)	Buyer
Legal fees (franchise attorney)	$3,000 to $7,500	Buyer
Accounting/due diligence	$2,000 to $5,000	Buyer
Business broker commission	8% to 12% of sale price	Seller (typically)
Lease assignment fees	$0 to $5,000	Buyer or seller
Security deposit (new lease or assignment)	1 to 3 months’ rent	Buyer

The total transaction cost above and beyond the purchase price can range from $20,000 to $150,000 or more, depending on the franchise system’s requirements and the condition of the facility. Budget for these costs before you negotiate the purchase price.

How Does the Lease Transfer Work When Buying an Existing Franchise?

The commercial lease is often the most underexamined element of a franchise resale, and it can be the most problematic. The lease is a separate contract between the current franchisee (or the franchisor, if the franchisor holds the master lease) and the landlord. Transferring the lease to a new tenant requires the landlord’s consent in most cases.

Key lease issues to investigate:

• Remaining term and renewal options: A lease with 2 years remaining and no renewal options creates significant uncertainty. You may need to renegotiate with the landlord before closing the franchise purchase.
• Assignment clause: Review the lease’s assignment provisions. Some leases prohibit assignment entirely, some permit it with landlord consent (not to be unreasonably withheld), and some allow free assignment. If the franchisor holds the master lease, the assignment is between the franchisor and you (as sub-tenant).
• Personal guarantee: Many commercial leases require a personal guarantee from the tenant. Determine whether the seller will be released from the lease guarantee upon assignment and whether you will be required to provide a new guarantee.
• Rent terms: Compare the current rent to market rates. If the lease has above-market rent with no negotiation leverage, that affects the franchise’s profitability and therefore its value.
• Exclusive use clause: Verify whether the lease contains an exclusive use clause that prevents the landlord from leasing to a competing business in the same shopping center or building.
• Co-tenancy clause: Some retail leases include a co-tenancy clause that allows the tenant to reduce rent or terminate if a major anchor tenant leaves the shopping center. This can be valuable protection.

A Client Scenario: The Hidden Liabilities in a Restaurant Franchise Resale

A client came to us after agreeing to purchase a restaurant franchise location for $275,000. The seller reported annual revenue of $780,000 and owner earnings (before debt service) of approximately $95,000. The franchise had 6 years remaining on a 10-year term. On the surface, the numbers looked reasonable.

During our due diligence, we discovered several issues the seller had not disclosed. First, the franchise had outstanding vendor payables of $42,000 that the seller had deferred to inflate short-term cash flow. The purchase agreement as initially drafted did not require the seller to satisfy these obligations before closing. Second, the franchisor required the buyer to sign its current franchise agreement, which included a royalty increase from 5% to 6% (a $7,800 annual impact at current revenue) and a mandatory technology fee of $350 per month that did not exist under the seller’s original agreement. Third, the commercial lease had only 6 years remaining with one 5-year renewal option, but the renewal was at “fair market rent” with no cap, which meant the rent could increase significantly at renewal.

Fourth, and most critically, we found that the franchise had failed its two most recent franchisor compliance inspections, and the franchisor had issued a notice of default requiring approximately $35,000 in facility upgrades to meet current brand standards. The seller had not completed these upgrades, and the franchisor conditioned its transfer approval on the upgrades being completed before closing.

We renegotiated the purchase price down by $60,000 to account for the outstanding vendor payables, the required facility upgrades, and the increased ongoing costs under the new franchise agreement. We also negotiated the purchase agreement to require the seller to pay all outstanding vendor obligations and franchise fees before closing, with holdback provisions in escrow. The total renegotiated purchase price was $215,000, and our client went into the business with a clear understanding of the actual economics.

What Financial Due Diligence Should I Do Before Buying an Existing Franchise?

Financial due diligence for a franchise resale is more extensive than for a new franchise purchase because you are evaluating an actual operating business, not a projected one. Request and review the following documents:

• Tax returns: At least 3 years of business tax returns (and personal returns if the business is a pass-through entity). Tax returns are the most reliable financial documents because they are filed under penalty of perjury.
• Profit and loss statements: Monthly P&L statements for the most recent 24 months. Look for trends: is revenue growing, flat, or declining? Are expenses increasing?
• Balance sheet: Current balance sheet showing all assets, liabilities, and owner’s equity. Verify that the assets listed on the balance sheet actually exist and are in working condition.
• Bank statements: 12 to 24 months of business bank statements. Compare deposits to reported revenue. Discrepancies indicate unreported revenue (cash businesses) or overstated revenue (seller misrepresentation).
• Payroll records: Full payroll records including all employee names, positions, pay rates, and benefit obligations. Determine whether any employees have employment contracts, non-compete agreements, or benefit obligations that will transfer to you.
• Accounts payable aging: A current accounts payable aging report showing all outstanding vendor balances and how long they have been unpaid.
• Outstanding debts and liens: UCC filings, equipment lease obligations, SBA loans, and any other secured or unsecured debts. Conduct a UCC search through the secretary of state’s office to identify all liens on the business’s assets.
• Litigation history: Any pending or threatened lawsuits, workers’ compensation claims, EEOC complaints, or health department violations.

Compare the seller’s financial performance against the franchisor’s Item 19 financial performance representations, if available. A franchise performing significantly below system averages warrants additional investigation into the reasons for underperformance.

Employee Transition: What Happens to the Seller’s Staff?

The seller’s employees are a critical asset in a franchise resale. Their knowledge of the operations, the customer base, and the local market is often worth more than the physical assets you are purchasing. However, the employee transition requires careful legal handling.

• At-will employment: In most states, the seller’s employees are at-will, meaning they can be terminated at any time for any lawful reason. The buyer is not legally obligated to retain any employees, but losing key staff immediately after closing can disrupt operations.
• Successor liability: In some jurisdictions, the buyer of a business may assume the seller’s employment-related liabilities, including unpaid wages, discrimination claims, and workers’ compensation claims. Structure the purchase as an asset purchase (not a stock/equity purchase) to minimize successor liability exposure.
• Employee notifications: Depending on the size of the workforce and your state’s laws, the seller may need to provide advance notice to employees under the WARN Act (60 days’ notice for employers with 100+ employees) or state-specific mini-WARN acts with lower thresholds.
• Key employee retention: Identify the seller’s key employees (managers, shift leaders) and consider offering retention bonuses or employment agreements contingent on them staying for a minimum period after closing.

The Complete Due Diligence Checklist

Before closing on any franchise resale, complete every item on this checklist:

Franchise Agreement Review

1. Review the seller’s existing franchise agreement, with focus on assignment/transfer provisions
2. Determine whether the franchisor requires a new franchise agreement and compare its terms to the seller’s original agreement
3. Identify the transfer fee amount and who is responsible for payment
4. Verify the remaining term and any renewal options
5. Confirm the franchisor’s right of first refusal timeline and status
6. Review the territory provisions in both the existing and proposed new agreement

Financial Due Diligence

1. Obtain and review 3 years of tax returns
2. Review 24 months of monthly P&L statements
3. Verify revenue against bank statements
4. Review accounts payable aging and all outstanding debts
5. Conduct UCC lien search through the secretary of state
6. Verify all equipment and inventory against the balance sheet

Lease and Real Estate

1. Review the commercial lease in full, including all amendments
2. Verify remaining term and renewal options
3. Confirm the lease assignment clause and landlord consent process
4. Compare current rent to market rates
5. Check for exclusive use and co-tenancy clauses

Operations and Compliance

1. Obtain the most recent franchise compliance inspection results
2. Identify any outstanding notices of default from the franchisor
3. Review health department inspection history (for food service franchises)
4. Verify all business licenses and permits are current and transferable
5. Review employee records: headcount, positions, pay rates, benefits
6. Identify any pending or threatened litigation, including EEOC complaints and workers’ compensation claims

For franchisees who are considering selling their existing location, our guide on how to sell or transfer your franchise covers the process from the seller’s perspective.

Frequently Asked Questions

Last updated: March 12, 2026

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For related guidance, read our posts on how to sell or transfer your franchise, the franchise validation process, and 10 franchise agreement red flags your lawyer should catch.