Challenge
Our client was a successful finance industry professional, and was referred by a family member who had previously worked with Lusthaus Law in connection with the purchase of rights to develop a franchise. For years, our client was a customer of a beauty salon business which was one of several corporate-owned units in New Jersey. The client loved the brand and convinced the owner to sell the salon unit she frequented.
The unit was owned directly by an affiliate of the franchisor. This ownership dynamic differs from purchasing directly from a franchisee; while there was essentially one less party involved in the transaction, other challenges and considerations arose that Lusthaus Law helped navigate.
Let’s explore our approach to the acquisition and how Lusthaus Law resolved the matter favorably for our client.
Solution
Though the franchise disclosure documents (FDD) were updated, and the franchisor was willing to allow our client to purchase the unit and operate it as a franchise, experienced NY and NJ franchise attorneys know that all transactions will include some hurdles. In this case, acquiring the necessary financial information from the seller caused delays from the outset. And as expected, we had to align the terms of the franchise agreement with the commercial lease.
Another notable feature of this transaction was the absence of a lawyer for the seller. Though the franchisor and seller were knowledgeable, Lusthaus Law took on more of the laboring oar than is typical for a buyer. As counsel for the buyer, we:
- Negotiated the franchise agreement with the franchisor
- Ensured that the lease and franchise agreement were aligned, and
- Negotiated the sales document (asset purchase agreement) directly with the seller.
However, as there was no attorney for the seller, we also had to draft and finalize all closing documents and ensure that all closing covenants were completed.
Thankfully, the unit was popular and profitable, and the franchisor was available to assist with closing the transaction. This direct line of communication eased the process and established a positive rapport from negotiation to closing.
Result
The acquisition demonstrated the uniqueness of purchasing a corporate unit, especially since the franchisor would have right of first refusal in any transaction (including purchasing from a franchisee).
This dynamic also underscores why buyers should contact their NY and NJ franchise lawyer prior to negotiating, to ensure their rights are protected from the outset.
Lusthaus Law led the acquisition process. Our client is now the owner and operator of this popular unit in New Jersey. Additionally, since the new owner had frequented the location, she knew the staff was comprised of hard workers who had served the clientele well. They remain employed and enjoyed job security amid the change in ownership. With morale kept high, the unit and brand’s stellar reputation among beauty salons was upheld and even helped drive new business.
