Franchise Resale Escrow in California
Buying an existing franchise is different from opening a new one. The escrow must handle franchisor approval, transfer fees, and territory rights.
Franchise resales are a significant part of the California business market. An existing franchisee wants to sell. A new buyer wants to take over. The franchisor must approve the transfer. The lease must be assigned. The equipment must be transferred. A franchise resale escrow account manages all of these conditions. At Secured Trust Escrow, we structure franchise resale escrows that protect buyers, sellers, and franchisors.
Franchisor Approval as a Contingency
Every franchise agreement gives the franchisor the right to approve or reject a new franchisee. The escrow instructions must make the closing contingent on franchisor approval. The buyer deposits the purchase price into escrow, but the funds are not released to the seller until the franchisor signs off. This protects the buyer from paying for a franchise they cannot operate. It protects the franchisor by ensuring the new owner meets their standards before taking control.
Transfer Fees and Training Costs
Franchise transfers typically involve transfer fees paid to the franchisor. The buyer may also need to pay for initial training. The escrow instructions should specify who pays these fees and when. In some cases, the seller agrees to cover the transfer fee as part of the negotiation. In other cases, the buyer pays. The escrow company disburses these fees according to the instructions, ensuring that the franchisor receives payment before the transfer is finalized.
Territory and Non-Compete Issues
Franchise agreements include territory restrictions and non-compete clauses. The escrow company does not enforce these clauses, but the escrow instructions should address what happens if the franchisor discovers that the buyer intends to violate territory boundaries or non-compete terms. The instructions may authorize the escrow company to cancel the transaction and return the buyer’s deposit if franchisor approval is withdrawn for cause.
Lease Assignment and Equipment
Most franchisees lease their premises. The lease must be assigned to the buyer or the buyer must secure a new lease. The escrow instructions make closing contingent on successful lease assignment. The equipment, which may include proprietary systems owned by the franchisor, must also be transferred. The escrow company verifies that all equipment is included in the sale and that the franchisor has no objection to the transfer of proprietary items.
Franchise Resale Escrow
Secured Trust Escrow handles franchise resales with franchisor approval contingencies throughout California.
About the Author: This guide was prepared by the escrow officers at Secured Trust Escrow, a California DFPI-licensed escrow company with experience in business holding escrow, relocation escrow, liquor license transfers, and mergers and acquisitions throughout Los Angeles, Torrance, and surrounding areas.
Legal and Regulatory Disclaimer: This article provides educational information about escrow services. It does not constitute legal, tax, or investment advice. Escrow transactions involve complex legal and financial consequences that vary by transaction type and individual circumstances. Parties should consult with qualified attorneys and tax professionals regarding their particular transactions. California regulations and market conditions change periodically. Last reviewed: July 2026.
