Challenge
Our client was a sophisticated business owner seeking to enter franchising by joining a recognizable franchise system that provides residential and commercial restoration services. Entering this service-based system as a franchisee was unique from the outset because no open areas were available. The client would have to acquire a territory already in operation. This was to the client's benefit, however, since they would not have to develop a territory.
To achieve their goal, the client sought to purchase two existing territories from two affiliated franchisees and intended to operate them as one business. The seller added to the challenge by insisting the lease of its affiliate-owned warehouse be included as part of the transaction.
This franchisee intended to keep the existing staff and had no major plans to overhaul operations, since the area had proven successful. Their goal was to improve revenues further by leveraging their knowledge and contacts in the area.
The franchise agreement and real estate lease would need to coincide to ensure the change in ownership would not impact logistics or operations. These key details influenced the franchisee to contact Lusthaus Law to protect their rights, financial interests and obligations.
Solution
The client was new to franchising and felt an urgency to finalize the acquisition before the calendar year ended. But no deadline or pressure should force anyone to sign an agreement without a qualified franchise lawyer. Drafting a purchase agreement is already an involved process, and adding a commercial lease only heightened the sale’s complexity.
Lusthaus Law stepped in to review and negotiate:
- The franchise disclosure document (FDD)
- The franchise agreement
- The asset purchase agreement for two territories
- The commercial lease of the seller’s property
Thoroughly reviewing these documents and modifying them to align with the franchisee’s strategy involved focus and endurance. Though the transaction was quicker than most of this size, the franchisee thankfully had all their prerequisite information available, and the franchisor was motivated for the parties to close the transaction.
Result+
The client was feeling pressure to commit before the end of the year. But thanks to our advocacy, crises were averted, and Lusthaus Law enabled the client to meet those deadlines: The franchisor had a dependable new franchisee operating in an active territory, and the franchisee could successfully hit the ground running while entering the industry. And true to their word, the franchisee kept the dedicated staff members based in the territory.
This transaction demonstrated why franchisees must consult a franchise lawyer prior to any negotiation or agreement. A franchise lawyer who is involved at the start of negotiations will mitigate transactional risks, protect your rights and ensure that joining a system is a positive experience.
